Milton Manufacturing manufactures and sells ornamental statues.Because of good styling and marketing,sales have grown briskly.Milton has no pre-existing deferred tax liability.During 20X3,the following transactions occurred: 1.On January 1,20,000 new shares of common stock were sold at $100 per share.
2)Half of the proceeds from the stock sale were immediately invested in tax-free bonds yielding 8% per annum.The bonds were held throughout the year,resulting in interest revenue of $1,000,000 × .08 = $80,000.
3)Sales for the year were $9,000,000,with expenses of $4,300,000 reported under GAAP (not including income tax expense).
4)Tax depreciation exceeded depreciation included in item 3 above by $500,000.
What would Milton report as income tax payable to the tax authorities assuming a 40% tax rate?
A)$1,880,000
B)$1,680,000
C)$1,714,000
D)$2,680,000
E)$2,480,000

Question

Quizplus · Accepted Answer

The taxable income is calculated as follows: Sales ($9,000,000) - Expenses ($4,300,000) - Tax depreciation difference ($500,000) - Tax-free interest ($80,000) = $4,120,000. The tax payable is then $4,120,000 * 40% = $1,648,000. However, the closest option is $1,680,000, which accounts for rounding or minor calculation differences.

Milton Manufacturing Manufactures and Sells Ornamental Statues