Dale Corporation's book income before federal income taxes was $435,000 for the year ended December 31, Year 1. Dale was organized on January 1, Year 1. Organization costs of $50,000 are being written off over a ten-year period for financial statement purposes. For tax purposes, the corporation has elected to take advantage of the maximum benefit for expensing organizational costs. No additional book/tax differences exist. For the year ended December 31, Year 1, Dale Corporation's taxable income was:
a.
$432,000
b.
$395,000
c.
$437,000
d.
$435,000
Explanation
Choice “a” is correct. For tax purposes, if elected, a maximum expense deduction of $5,000 is allowed for organizational costs in the year of organization. The remainder must be amortized over 180 months. The book income of $435,000 must be adjusted for the difference between the book amortization and tax amortization allowed. Book amortization would be $5,000 per year ($50,000 divided by 10 years).
Why are we not deducting $8,000 and only the $3,000. Becker doesn't go depth on this in the book.
.