can someone please explain me this question:
Eastern Corp., a calendar year corporation, was formed January 3, Year 1, and on that date placed five-year property in service. The property was depreciated under the general MACRS system. Eastern did not elect to use the straight-line method. The following information pertains to Eastern:
Eastern's Year 1 taxable income $ 300,000
Adjustment for the accelerated depreciation taken on Year 1 five-year property 1,000
Year 1 tax-exempt interest from specified private activity bonds issued 5,000
What was Eastern's Year 1 alternative minimum taxable income before the adjusted current earnings (ACE) adjustment?
a. $301,000
b. $305,000
c. $304,000
d. $306,000
the correct answer is D. I understand why 5,000 is an add back, but have no idea about the 1,000 depreciation adjustment. I thought tax deduct more depreciation if it's Year 1, if that's the case, shouldn't we be subtracting the 1,000 from book income instead of adding it back?
Thank you!
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