This year, Zulou Industries capitalized $552,000 indirect costs to inventory for book purposes and $591,600 indirect cost to inventory under unicap. Zulou's cost of goods sold for book purposes was $2,458,000, and its cost of goods sold for tax purposes was $2,707,000. If Zulou has no other book/tax differences, and its book income is $5,000,000, compute Zulou's taxable income.
A) $4,711,400
B) $4,751,000
C) $4,790,600
D) $5,288,600

Question

Quizplus · Accepted Answer

To calculate the taxable income, we need to add back the indirect costs capitalized to inventory under unicap to the cost of goods for tax purposes. 
Hence, taxable income = book income - indirect costs capitalized to inventory for book purposes + cost of goods sold for tax purposes + indirect costs capitalized to inventory under unicap 
= $5,000,000 - $552,000 + $2,707,000 + $591,600 
= $4,790,600 
Therefore, the correct answer is choice C.

This Year, Zulou Industries Capitalized $552,000 Indirect Costs to Inventory