Flip Corporation is subject to tax only in State X. Flip 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 |
300,000 |
|
Interest income on Federal obligations |
50,000 |
|
Interest income on X obligations |
30,000 |
|
Expenses related to carrying X obligations |
10,000 |
a. The starting point in computing the X income tax base is Federal taxable income.
Derive this amount.
b. Determine Flip’s X taxable income assuming that interest on X obligations is exempt from X income tax.
c. Determine Flip’s X taxable income assuming that interest on X obligations is subject to X income tax.