Choice "D" is correct. Taxable income is accounting (book) income adjusted for other items. In this question, the book income is $150,000. That book income includes $50,000 federal income tax expense, and that amount should be added back for taxable income. The $5,000 interest income from municipal bonds should be subtracted because it is not taxable, and the $10,000 excess capital losses over capital gains should be added back because the excess is not a deduction in the current year. The net result is $205,000.
Choice "b" is incorrect. The $185,000 is the $205,000 with the $10,000 excess capital losses subtracted and not added.
Choice "a" is incorrect. The $195,000 is the $205,000 with the $10,000 ignored.
Choice "c" is incorrect. The $215,000 is the $205,000 with the $5,000 interest income from municipal bonds added and not subtracted.