Chapter 3 Comprehensive Example

This example combines several issues from Chapter 3.   See how well you fare.

Driver Corporation provides you with the following information: 

Sales 3,000,000
Sales Returns and Allowances $30,000
Cost of Goods Sold $1,200,000
Officer Compensation $300,000
Repairs  $30,000
Advertising Expense $100,000
Dividends Received from 20% owned company $35,000
Charitable Contributions  $100,000
Depreciation (book) $30,000
Depreciation (tax) $40,000
Work Opportunity Credit $3,000
Rent $30,000
Other Expenses $300,000
Interest Received
            Tax-Exempt  $20,000
            Shell Corporate Bonds  $30,000
Taxes Paid $15,000
Utilities-indirect $5,000
Wages and Salaries-indirect $25,000

Required: 

1. Determine the firm’s Charitable Contributions Deduction.

2. Determine the firm’s Dividends Received Deduction.

3. Determine the firm’s taxable income.

4. Determine the firm’s book income before tax.

5. Determine the firm’s tax liability.

6. Reconcile the book and taxable income numbers using the following Table representing lines available on the M1

7. Determine the firm’s book income after tax (Net Income)