Reference no: EM132650698
Problem - Fallow Corporation is subject to tax only in State X. Fallow generated the following income and deductions. State income taxes are not deductible for X income tax purposes.
Sales $4,000,000
Cost of sales 2,800,000
State X income tax expense 200,000
Depreciation allowed for Federal tax purposes 400,000
Depreciation allowed for state tax purposes 250,000
Interest income on Federal obligations 40,000
Interest income on X obligations 30,000
Expenses related to carrying X obligations 2,000
Required -
a. The starting point in computing the X income tax base is Federal taxable income. Derive this amount.
b. Determine Fallow's X taxable income assuming that interest on X obligations is exempt from X income tax.
c. Determine Fallow's X taxable income assuming that interest on X obligations is subject to X income tax.