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:

Question

Quizplus · Accepted Answer

The book equivalent of taxable income is computed by adjusting pretax book income for both permanent and temporary differences.

Book equivalent of taxable income = Pretax book income + Favorable permanent differences - Unfavorable permanent differences + Favorable temporary differences - Unfavorable temporary differences

Plugging in the given values:

Book equivalent of taxable income = $400,000 + $40,000 - $0 + $50,000 - $20,000
Book equivalent of taxable income = $470,000 - $20,000
Book equivalent of taxable income = $450,000

Therefore, the correct answer is C, $360,000.

Jones Company Reported Pretax Book Income of $400,000