Milton Manufacturing manufactures and sells ornamental statues.Because of good styling and marketing,sales have grown briskly.Milton has no pre-existing deferred tax liability.During 20X3,the following transactions occurred: 1.On January 1,20,000 new shares of common stock were sold at $100 per share.
2)Half of the proceeds from the stock sale were immediately invested in tax-free bonds yielding 8% per annum.The bonds were held throughout the year,resulting in interest revenue of $1,000,000 × .08 = $80,000.
3)Sales for the year were $9,000,000,with expenses of $4,300,000 reported under GAAP (not including income tax expense).
4)Tax depreciation exceeded depreciation included in item 3 above by $500,000.
What are earnings before tax for shareholder reporting?
A)$4,780,000
B)$4,700,000
C)$4,500,000
D)$6,780,000
E)$6,200,000

Question

Quizplus · Accepted Answer

Earnings before tax for shareholder reporting can be calculated as follows: Sales ($9,000,000) minus expenses ($4,300,000) plus tax-free interest income ($80,000) equals $4,780,000. The difference in depreciation for tax purposes does not affect the earnings before tax for shareholder reporting.

Milton Manufacturing Manufactures and Sells Ornamental Statues