Tongass had pretax accounting income of $1,400 during 2014.Tongass used accelerated depreciation for tax purposes ($1,000)and straight-line depreciation for financial reporting purposes ($200).During 2014,Tongass accrued warranty expenses of $900 and paid cash to honor warranties of $500.Tongass's taxable income for 2014 would be

Question

Quizplus · Accepted Answer

Tongass uses accelerated depreciation for tax purposes and straight-line depreciation for financial reporting purposes. Therefore, the tax depreciation expense can be calculated as:

Tax Depreciation Expense = Accelerated Depreciation - Straight-Line Depreciation
Tax Depreciation Expense = $1,000 - $200
Tax Depreciation Expense = $800

So, the taxable income can be calculated as:

Taxable Income = Pretax Accounting Income - Tax Depreciation Expense - Warranty Expenses + Warranty Paid
Taxable Income = $1,400 - $800 - $900 + $500
Taxable Income = $200

Therefore, the taxable income for 2014 would be $200, option B is correct.

Tongass Had Pretax Accounting Income of $1,400 During 2014