Ramirez Corporation, which is subject to income tax only in State A, generated the following income and deductions: $\begin{array}{lr}
\text { Federal taxable income } & \$ 500,000 \
\text { State A income tax expense } & 45,000 \
\text { Depreciation allowed for Federal tax purposes } & 300,000 \
\text { Depreciation allowed for state tax purposes } & 250,000
\end{array}$ Federal taxable income is the starting point in computing A taxable income. State income taxes are not deductible for A tax purposes. Ramirez's A taxable income is:

Question

Quizplus · Accepted Answer

To calculate Ramirez's A taxable income, start with the federal taxable income of $500,000. Since State A does not allow the deduction of its own income tax expense, add back the $45,000. Then, adjust for the difference in depreciation between federal ($300,000) and state ($250,000) purposes, which is $50,000 more for federal. Therefore, subtract this difference from the income. The calculation is $500,000 + $45,000 - $0 = $545,000. However, the correct adjustment for depreciation is to add the difference since the state allows less depreciation, thus increasing taxable income. So, the correct calculation is $500,000 + $45,000 + $50,000 = $595,000.

Ramirez Corporation, Which Is Subject to Income Tax Only in State