Timpanogos Inc. is an accrual-method calendar-year corporation. For 2012, it reported financial statement income after taxes of $1,149,000. Timpanogos provided the following information relating to its 2012 activities:
Life insurance proceeds as a result of CEO’s death
Revenue from sales (for book and tax purposes)
Premiums paid on the key-person life insurance policies. The policies have no cash surrender value.
Overhead costs that were expensed for book purposes but are included in ending inventory for tax purposes under § 263A.
Overhead costs that were expensed for book purposes in 2011 but were included in 2011 ending inventory for tax purposes under §263A. All 2011 ending inventory was sold in 2012.
Cost of goods sold for book purposes
Interest income on private activity tax-exempt bonds issued in 2004
Interest paid on loan obtained to purchase tax-exempt bonds
Rental income payments received and earned in 2012
Rental income payments received in 2011 but earned in 2012
Rental income payments received in 2012 but not earned by year end
Alternative minimum tax depreciation
Net capital loss
Federal income tax expense for books in 2012
Timpanogos did not qualify for the domestic production activities deduction.
a. Reconcile book income to taxable income for Timpanogos Inc. Be sure to start with book income and identify all of the adjustments necessary to arrive at taxable income.
b. Identify each book-tax difference as either permanent or temporary.
c. Complete Schedule M-1 for Timpanogos.
d. Compute Timpanogos, Inc.’s regular tax liability for 2012.
e. Determine Timpanogos’s alternative minimum tax, if any.
Step 1 of 4 a&b. Timpanogos’s taxable income is $1,512,000, computed as follows: