Slipper Corporation has book income of $500,000. Book income includes a $50,000 gain on the sale of equipment. The equipment originally cost $110,000 and was sold for $75,000. Accumulated book depreciation was $85,000; accumulated MACRS depreciation was $90,000. Based only on these items, compute Slipper's taxable income.

Question

Quizplus · Accepted Answer

Taxable income is calculated by adjusting book income for differences between book and tax treatments. The gain on sale for tax purposes is $75,000 (sale price) - $110,000 (cost) + $90,000 (MACRS depreciation) = $55,000. Since the book gain was $50,000, we add back the $5,000 difference to the book income of $500,000 to get $505,000.

Slipper Corporation Has Book Income of $500,000