[Biff-1955-Tannen]

Can somebody explain why this nondeductible expense is being included in determining income? I don’t get it…

In financial statements prepared on an income-tax basis, how should the nondeductible portion of expenses, such as meals and entertainment, be reported?

Correct A.

Included in the expense category in the determination of income

B.

Included in a separate category in the determination of income

C.

Excluded from the determination of income, but included in the determination of retained earnings

D.

Excluded from the financial statements

“Taxable income is an amount resulting from the application of tax rules governing revenues and expenses. Some revenues/expenses are specifically excluded or subjected to limitation(s).

When determining net income using the income-tax basis, a fair determination necessitates using the nondeductible (for taxes) portion of expenses (such as meals and entertainment) as long as they are legitimate business expenses.”

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

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[Biff-1955-Tannen]

Also on an unrelated note, instead of making a new thread I'll just ask in this one.
“Costs in excess of billings on long-term contracts” is this pretty much just like a receivable?

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[FIFOisbetterthanLIFO]

To your first post, it sounds like the question is a little bit screwy/tricky. When the financial statements are prepared on an income tax basis you still need to show all expenses. You aren't just regurgitating the tax return onto a financial statement. Income tax basis does make it simple to file the tax return once you have compiled the statements this way. Preparing them on an income tax basis is more common among small business who don't need fully compliant GAAP financial statements but would like to see how they did for the year.

To your second post, cost in excess of billings is the portion that is unbilled. It means that the billings are less than the income earned thus far. The idea is that it's an asset. Not necessarily a receivable yet because you haven't billed it but along those lines.

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[Anonymous]

the meals and entertainment are expensed 100% for books , for financial reporting. For tax , the deductible amount is 50%. This is true no matter what basis of accounting you use .

[Biff-1955-Tannen]

“When the financial statements are prepared on an income tax basis you still need to show all expenses. You aren't just regurgitating the tax return onto a financial statement. Income tax basis does make it simple to file the tax return once you have compiled the statements this way.”

This helps a little bit. Thanks for the responses.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Author]

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