Net income per books ( after taxes ) $ 33,000 Federal income tax per books 12,000 Tax-exempt interest income 6,000 Interest on loan to purchase tax-exempt bonds 8,000 MACRS depreciation exceeding book depreciation 3,000 Net capital loss 5,000 Insurance premium on life of corporate officer where Zero is the beneficiary 10,000 Excess charitable contributions carried over to next year 2,500 U . S . production activities deduction 1,000 Prepare a reconciliation of Zero ’ s taxable income before special deductions with its book income .
Case Study I10-52 Able Corporation is a manufacturer of electrical lighting fixtures . Able is currently negotiating with Ralph Johnson , the owner of an unincorporated business , to acquire his retail electrical lighting sales business . Johnson ’ s assets that are to be acquired include the following : Inventory of electrical fixtures $ 30,000 $ 50,000 Store buildings 80,000 100,000 Land 40,000 100,000 Equipment : 7-year recovery period 30,000 50,000 Equipment : 5-year recovery period Mr . Johnson indicates that a total purchase price of $ 1,000,000 in cash is warranted for the business because of its high profitability and strategic locations and Able has agreed that the business is worth $ 1,000,000 . Despite the fact that both parties attribute the excess payment to be for goodwill , Able would prefer that the $ 600,000 excess amount