Palm Corporation has book income of $424,000. Book income reflects $130,000 federal income tax expense and $55,000 depreciation expense. Tax depreciation expense computed under MACRS is $65,000. Palm received $25,000 of prepaid rent not included in book income. Based only on these items, compute Palm's taxable income.

Question

Quizplus · Accepted Answer

Taxable income is computed as book income plus permanent differences and minus temporary differences. In this case, the permanent difference is the difference between tax depreciation and book depreciation, which is $65,000 - $55,000 = $10,000. The temporary difference is the prepaid rent, which is $25,000. Therefore, taxable income is $424,000 + $10,000 - $25,000 = $569,000.

Palm Corporation Has Book Income of $424,000