For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included bad debt expense of $6 based on the allowance method, and $20 in depreciation expense. Two million in receivables were written off as uncollectible, and MACRS depreciation amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's taxable income?

Question

Quizplus · Accepted Answer

To calculate taxable income, adjust pretax accounting income for differences between book and tax accounting. Add back the $6 bad debt expense (since write-offs are used for tax purposes) and adjust depreciation by adding back $20 and subtracting $35 (MACRS). Thus, taxable income = $80 + $6 + $20 - $35 = $71 million. However, the $2 million write-off is already accounted for in the bad debt adjustment, so the correct taxable income is $69 million.

For the Current Year ($ in Millions), Centipede Corp