Final answer:
Griffin, Inc.'s net income for the year is calculated by starting with the taxable income, subtracting the income tax expense and non-deductible penalties, and adding the non-taxable interest. After adjustments, Griffin's net income amounts to $40,000.
Step-by-step explanation:
Calculating Griffin, Inc.'s net income for the year involves adjusting its taxable income by considering specific non-taxable items and expenses. Start with the taxable income of $55,000 and then deduct the income tax expense of $8,000.
Next, add back the $1,000 in interest received from a municipal bond, which is typically exempt from federal income tax. However, we must also adjust for expenses that are not fully deductible. The $2,000 in penalties is not deductible, and only 50% of the $12,000 in business meals is typically deductible, resulting in a $6,000 deduction.
The calculation is as follows:
Taxable Income: $55,000
Less: Income Tax Expense: $8,000
Add: Interest Income from Municipal Bond: $1,000
Less: Penalties (Non-deductible): $2,000
Less: 50% of Business Meals: $6,000
This results in a net income of $55,000 - $8,000 + $1,000 - $2,000 - $6,000 = $40,000.