Honu,Inc.has book income of $1,200,000.Book income includes $620,000 income tax expense,$10,000 of municipal bond interest income,and $150,000 of meals and entertainment expense.Based only on these items,compute Honu's taxable income.

Question

Quizplus · Accepted Answer

To calculate taxable income, we need to add back the tax-exempt income (municipal bond interest income) and disallowed expenses (meals and entertainment) to the book income and then subtract the income tax expense. 
Taxable income = Book income - Municipal bond interest income + Meals and entertainment expense - Income tax expense
Taxable income = $1,200,000 - $10,000 + $150,000 - $620,000
Taxable income = $720,000 
Therefore, the best choice is D) $1,885,000.

Honu,IncHas Book Income of $1,200,000