The following question is from the Wiley test bank:
For the year ended December 31, 2011, Marshall Corporation reported book income, before federal income taxes, of $200,000. The following items were included in the determination of income before federal income taxes.
Provision for state corporate income tax $15,000
Interest earned on United States obligation 20,000
Net long-term capital loss from the sale of marketable securities 10,000
Interest paid on loan to purchase United States obligations 12,000
Marshall’s taxable income on its 2011 federal income tax return would be
• $193,000
• $192,000
• $225,000
• $210,000
Wiley says the correct answer is 210,000 and they give the following explanation-
The only reconciling item is the NLTCL of $10,000 which was deducted per books, but is not deductible in computing taxable income. Taxable income is $200,000 + $10,000 = $210,000.
However I think this is wrong because I am pretty sure that interest earned on U.S. obligations is not includible in taxable income and therefore would have to be subtracted out to reach taxable income. (looked it up in Becker book to confirm-R3-6 and it seems that Wiley is wrong!) Also I thought that interest paid for U.S obligations is not deductible and therefore would have to be added back to calculate taxable income.
Am i missing something here? Help please!!
Thanks another71 community in advance and for just being there through this process!
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