Page 1 of 10
Taxation of Business
Entities, 2012, eBook
Chapter5: Corporate Operations
44. (LO1) LNS corporation reports book income of $2,000,000. Included in the $2,000,000 is $15,000 of taxexempt interest income. LNS reports $1,345,000 in ordinary and necessary business expenses. What is LNS corporation 's taxable income for the year?
45. (LO1) ATW corporation currently uses the FIFO method of accounting for its inventory for book and tax purposes. Its beginning inventory for the current year was $8,000,000. Its ending inventory for the current year was $7,000,000. If ATW had been using the LIFO method of accounting for its inventory, its beginning inventory would have been $7,000,000 and its ending inventory would have been $5,500,000. Assume ATW corporation 's marginal tax rate is 34 percent.
a. How much more in taxes did ATW corporation pay for the current year because it used the FIFO method of accounting for inventory than it would have paid if it had used the LIFO method?
b. Why would ATW use the FIFO method of accounting if doing so causes it to pay more taxes on a present value basis? (Note that the tax laws don 't allow corporations to use the LIFO method of accounting for inventory unless they also use the LIFO method of accounting for inventory for book purposes.) 46. (LO1) ELS corporation is about to begin its sixth year of existence. Assume that ELS reported gross receipts for each of its first five years of existence for Scenarios A, B, and C as follows:
a. In what years is ELS allowed to use the cash method of accounting under Scenario A?
b. In what years is ELS allowed to use the cash method of accounting under Scenario B?
c. In what years is ELS allowed to use the cash method of accounting under Scenario C?
47. (LO2) On its year 1 financial statements, Seatax Corporation, an accrual-method taxpayer, reported federal income tax expense of $570,000. On its year 1 tax