Question

Jones company reported pretax book income of $400,000. included in the computation were favorable temporary differences of $50,000, unfavorable temporary difference of $20,000, and favorale permanent differences of $40,000. book equivalent of taxable income is:

Answer 1

In this case, the book value of taxable income would simply be the difference in pretax book income and favorable permanent differences. That is:

Taxable income = Pretax book income – Favorable permanent differences

Taxable income = $400,000 - $40,000

Taxable income = $360,000