Question

Woody Corp. had taxable income of $8,000 in the current year. The amount of MACRS depreciation was $3,000, while the amount of depreciation reported in the income statement was $1,000. Assuming no other differences between tax and accounting income, Woody's pretax accounting income was: Multiple Choice $5,000. $6,000. $10,000. $11,000.

Answer 1

Answer:

Option C $10,000

Explanation:

Taxable income is $8000 and the tax allowable depreciation (MACRS) is $3000. To arrive at accounting income we have to deduct Tax allowable depreciation from the taxable income and add the accounting depreciation which is $1000.

This implies:

Accounting profit = Taxable Income + Tax allowable depreciation - Tax disallowed expense + Tax disallowed income

By putting values we have:

Accounting profit = $8000 + $3000 - $1000 = $10,000