For the year ended December 31, 2012, Shady Corporation had net income per books of $2,000,000. Included in the determination of net income were the following items: A. $2,736,000
C is corrent. The requirement is to compute Shady’s taxable income given book income of $2,000,000 and items included in the computation of book income. Book income must be adjusted for the tax-exempt interest (net of related expenses) and the provision for federal income tax:
A is incorrect. The interest paid on loan is not deductible because the loan was used to produce tax-exempt income. B is incorrect. The damages must be included in taxable income. D is incorrect. The damages must be included in taxable income.
