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 deprecation was $90,000. Based only on these items, compute Slipper's taxable income.

Question

Quizplus · Accepted Answer

Taxable income is book income plus permanent differences and minus timing differences. The gain on the sale of equipment is a permanent difference because it is not included in taxable income. The difference between MACRS depreciation and book depreciation is a timing difference because it will reverse in the future. Therefore, taxable income is $500,000 + $50,000 - $5,000 = $545,000.

Slipper Corporation Has Book Income of $500,000