Asked by jeffrey caldarona on May 11, 2024
Verified
Purple Company makes and sells computer printers.It has taxable income of $1,300,000 before taking into account charitable contributions.The company contributed a parcel of unused land to an art museum to be used to construct a branch museum.The land had a FMV of $50,000 and a basis of $30,000.The company also donated 1,000 of its computer printers to the local community college for use in student computer labs.The printers have a FMV of $200 each and a basis of $120 each.Determine the taxable income of Purple Company and its charitable contribution carryforward,if any.
Charitable Contribution
Donations made to qualified organizations that may be tax-deductible for the donor.
Taxable Income
The amount of income that is subject to tax, after accounting for deductions and exemptions.
FMV
Fair Market Value; an estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would likely pay to a knowledgeable, willing, and unpressured seller.
- Ascertain the taxable income for a corporation and appreciate the significance of its earnings and profits.
- Grasp the needed changes for reconciling accounting income with tax-reportable income, including the management of specific revenue and expenditure types.
Verified Answer
FP
Fatima PerezMay 15, 2024
Final Answer :
Charitable contributions are limited to 10% of taxable income before charitable contributions.Subject to the 10% limitation,the land contribution is equal to the FMV of $50,000.The printers are ordinary income property.Thus,the deduction is limited to their basis of $120,000.Total charitable contribution is $170,000.
Purple Company can take a charitable contribution of $130,000 (10% of $1.3 million).It will have a charitable contribution carryforward of $40,000.Taxable income is $1,300,000 - $130,000 = $1,170,000.
Purple Company can take a charitable contribution of $130,000 (10% of $1.3 million).It will have a charitable contribution carryforward of $40,000.Taxable income is $1,300,000 - $130,000 = $1,170,000.
Learning Objectives
- Ascertain the taxable income for a corporation and appreciate the significance of its earnings and profits.
- Grasp the needed changes for reconciling accounting income with tax-reportable income, including the management of specific revenue and expenditure types.