Sycamore Corporation's financial statements show the following items for the current year in its financial accounting records:Gross receipts$500,000Cost of goods sold 260,000Capital loss7,000Salaries and wages80,000Operating expenses50,000Depreciation12,000Charitable contributions10,000Dividend income5,000For tax purposes, depreciation is $22,000. Sycamore owns less than 20% of the company from which it received dividends. Calculate Sycamore's taxable income, tax liability, and carryforwards.

What will be an ideal response?

Gross receipts$500,000
Cost of goods sold  260,000
Gross Profit  240,000
Salaries and wages80,000
Operating expenses50,000
Depreciation expense22,000  152,000
Operating income88,000
Dividend income5,000
Income before charitable cont.
 and DRD93,000
Charitable contribution deduction*9,300
DRD (50% × 5,000)2,500
Taxable income $81,200
* 93,000 × .10
Tax: $81,200 * 21%) $17,052
Charitable contribution carryforward $10,000 - 9,300 = $ 700

No deduction is allowed for the capital loss. It must be offset by capital gains. If it cannot be carried back and applied to net capital gains in the three preceding years, it (or the remainder) will be carried forward for up to five years.

Business

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