Palm Corporation has book income of $424,000.Book income reflects $200,000 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 by adding and subtracting permanent and temporary differences to book income. In this case, the permanent difference is the difference between book depreciation and tax 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 = $459,000.

Palm Corporation Has Book Income of $424,000