Question

SEP, a calendar year corporation, reported $918,000 net income before tax on its current year financial statements prepared in accordance with GAAP. The corporation’s records reveal the following information:

SEP incurred $75,000 of domestic research costs that resulted in a new 17-year patent for the corporation. SEP expensed these costs for book purposes.
SEP’s depreciation expense per books was $98,222, and its MACRS depreciation deduction was $120,000.
SEP was organized two years ago. For its first taxable year, it capitalized $27,480 start-up costs and elected to amortize them over 180 months. For book purposes, it expensed the costs in the year incurred.

Answer 1

The firm's accounting profit is $50,000.

Step-by-step explanation:

Accounting profit is calculated by subtracting explicit costs from revenue. In this case, the firm's revenue is $1 million and its explicit costs are the sum of labor, capital, and material expenses, which is $600,000 + $150,000 + $200,000 = $950,000.

So, the accounting profit is $1,000,000 - $950,000 = $50,000.