For the year ended December 31, 2019, Prunus, Inc., reported net income before federal income tax expense of $800,000 per the corporation's books. This figure included the following items: $\begin{array} { l }
\text {Interest income on tax-exempt municipal securities }&\$30,000 \
\text { Loss on sale of 1 and acquired in 1987 as an investment }&\$40,000 \
\text {Interest expense on loan to purchase tax-exempt municipal securities }&\$10,000 \
\end{array}$
What is the taxable income of Prunus, Inc. for 2019?

Question

For the year ended December 31, 2019, Prunus, Inc., reported net income before federal income tax expense of $800,000 per the corporation's books. This figure included the following items:  $\begin{array} { l  }
 \text {Interest income on tax-exempt municipal securities }&\$30,000 \
 \text { Loss on sale of 1 and acquired in 1987 as an investment  }&\$40,000 \
 \text {Interest expense on loan to purchase tax-exempt municipal securities }&\$10,000 \
\end{array}$
 What is the taxable income of Prunus, Inc. for 2019?

Quizplus · Accepted Answer

To calculate the taxable income of Prunus, Inc. for 2019, adjustments need to be made to the net income before federal income tax expense to account for the tax-exempt interest income and the related interest expense. The interest income on tax-exempt municipal securities ($30,000) is not taxable and should be subtracted, and the interest expense on the loan to purchase those securities ($10,000) is not deductible and should be added back. The loss on sale is a non-taxable event and does not affect the calculation. Therefore, the taxable income is calculated as follows: $800,000 - $30,000 + $10,000 = $780,000. However, since none of the provided choices match this calculation and the instructions specify not to include any text other than the choice number and explanation, it appears there may have been a mistake in the calculation or in the interpretation of the provided information. Given the options, the correct answer based on standard tax adjustments would not match any of the provided choices, suggesting a potential error in the question setup or calculation.

For the Year Ended December 31, 2019, Prunus, Inc What Is the Taxable Income of Prunus, Inc