Jones Company reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,000, unfavorable temporary differences of $20,000, and favorable permanent differences of $40,000. Book equivalent of taxable income is:

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The book equivalent of taxable income is calculated by adjusting the pretax book income for temporary differences only. Starting with $400,000, add the unfavorable temporary difference of $20,000 and subtract the favorable temporary difference of $50,000, resulting in $370,000. Permanent differences do not affect taxable income.

Jones Company Reported Pretax Book Income of $400,000