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Project Desciption

1. LNS Corporation reports revenues of $2,210,000. Included in the $2,210,000 is $30,500 of tax-exempt interest income. LNS reports $1,372,500 in ordinary and necessary business expenses. What is LNS corporation’s taxable income for the year?

2. Assume Maple Corp. has just completed the third year of its existence (year 3). The table below indicates Maple’s ending book inventory for each year and the additional §263A costs it was required to include in its ending inventory. Maple immediately expensed these costs for book purposes. In year 2, Maple sold all of its year 1 ending inventory, and in year 3 it sold all of its year 2 ending inventory.

Year 1 Year 2 Year 3
Ending book inventory $ 3,180,000 $ 3,725,000 $ 3,014,000
Additional §263A costs 34,000 85,750 41,500
Ending tax inventory $ 3,214,000 $ 3,810,750 $ 3,055,500

Required:

  1. What book–tax difference associated with its inventory did Maple report in year 1? Was the difference favorable or unfavorable? Was it permanent or temporary?
  2. What book–tax difference associated with its inventory did Maple report in year 2? Was the difference favorable or unfavorable? Was it permanent or temporary?
  3. What book–tax difference associated with its inventory did Maple report in year 3? Was the difference favorable or unfavorable? Was it permanent or temporary?

What book-tax difference associated with its inventory did Maple report in year 2? Was the difference favorable or unfavorable? Was it permanent or temporary?

Book-tax difference
Was the difference favorable or unfavorable?
Was it permanent or temporary?

What book-tax difference associated with its inventory did Maple report in year 3? Was the difference favorable or unfavorable? Was it permanent or temporary?

Book-tax difference
Was the difference favorable or unfavorable?
Was it permanent or temporary?

3. MWC Corp. is currently in the sixth year of its existence (2019). In 2014–2018, it reported the following income and (losses) (before net operating loss carryovers or carrybacks).

2014: $ (85,500 )
2015: (23,500 )
2016: 64,000
2017: 171,000
2018: (8,500 )
2019: 392,500

a. What is MWC’s 2019 taxable income after the NOL deduction?

4. In year 1 (the current year), LAA Inc. made a charitable donation of $140,250 to the American Red Cross (a qualifying charity). For the year, LAA reported taxable income of $503,000, which included a $140,250 charitable contribution deduction (before limitation), a $70,000 dividends received deduction, and a $12,800 net operating loss carryover from year 0.

What is LAA Inc.’s charitable contribution deduction for year 1?

5. Riverbend Inc. received a $252,500 dividend from stock it held in Hobble Corporation. Riverbend’s taxable income is $2,550,000 before deducting the dividends received deduction (DRD), a $41,500 NOL carryover, and a $104,000 charitable contribution. Use Exhibit 16-6. (Round your tax rates to 1 decimal place. Leave no answer blank. Enter zero if applicable.)

a. What is Riverbend’s deductible DRD assuming it owns 10 percent of Hobble Corporation?

b. Assuming the facts in part (a), what is Riverbend’s marginal tax rate on the dividend?


c. What is Riverbend’s DRD assuming it owns 53 percent of Hobble Corporation?

 

d. Assuming the facts in part (c), what is Riverbend’s marginal tax rate on the dividend?

e. What is Riverbend’s DRD assuming it owns 92 percent of Hobble Corporation (and is part of the same affiliated group)?

f. Assuming the facts in part (e), what is Riverbend’s marginal tax rate on the dividend?

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Member since: 2020-02-01
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