For the current year, Maple Corp.'s book income, before federal income tax, was $100,000. Included in this $100,000 were the following:
Provision for state income tax $ 1,000
Interest earned on U.S. Treasury Bonds 6,000
Interest expense on bank loan to purchase U.S. Treasury Bonds 2,000
Maple's taxable income for the current year was:
a.$97,000
b.$100,000
c.$101,000
d.$96,000
Explanation
Choice “b” is correct. Maple's taxable income for the year was $100,000.
No adjustments from book income are required:
State income taxes are a deductible corporate expense.
Interest earned on U.S. treasury bonds are taxable.
Interest expense on bank loans to purchase U.S. treasury bonds are deductible since the interest income earned on U.S. treasury bonds is taxable.
My problem with this question was the wording. I did know that state income taxes and interest expense were deductible, whereas interest earned on treasury bonds were taxable. But my logic was that book income was $100,000 and that included all three items, thus for taxable income I needed to dedcut the $3,000 of allowable dedutions for this case.
Where is it that I am misinterpreting the question?
BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS
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