Pink Corporation is an accrual basis taxpayer that uses the recurring item exception to the economic performance test for all relevant years.For 2014,the corporation's income subject to state income tax was $500,000 and the state corporate tax rate was 6%.During 2014,the corporation paid $24,000 on its estimated state income tax liability for that year.The remaining $6,000 of 2014 state income tax was paid in April 2015.In June 2014,the corporation paid $9,000 on its year 2013 state income tax liability,as a result of an audit of the 2013 return that was conducted in 2014.The company has elected to use the recurring item exception to economic performance.As a result of the above,the corporation should deduct in 2014 on its Federal income tax return state income taxes of:

Question

Quizplus · Accepted Answer

Pink can deduct $30,000 (6% × $500,000)for the current year taxes and $9,000 for the additional 2013 taxes paid in the current year.The taxes are recurring,allowing the deduction will result in an accurate matching of revenues and expenses,and the taxes are paid within 8 1/2 months after the close of the tax year.The $9,000 paid in 2014 on 2013taxes is deducted in 2014 because they did not accrue until the audit was completed in 2014 and the taxes were paid during the year.

Pink Corporation Is an Accrual Basis Taxpayer That Uses the Recurring