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Sampson Company's MACRS tax depreciation

Sampson Company is a C corporation that uses a calendar year and the accrual method of accounting for tax purposes. Sampson Company is a domestic (U.S.) manufacturer of electric motors and all of its gross receipts and related deductions are derived from domestic (U.S.) production activities. the following information was obtained from Sampson company's GAAP financial accounting income statement for calendar year 2006:

Gross revenues from sales of merchandise $30,000,000
Cost of goods sold (18,000,000)
Gross Margin $12,000,000
Dividend income 200,000
Total income $12,200,000
Compensation of officers & employees (8,000,000)
Bad debt expense (240,000)
Warranty expense (180,000)
Meals & entertainment expense (120,000)
Depreciation on property, plant & equipment (360,000)
Net income before federal income tax expense $3,300,000
Provision for federal income tax expense (1,155,000)
Net income after federal income tax expense $2,145,000

Additional information for Sampson Company:
1. Sampson Company owns 10% of the common stock of Horizon Company, a domestic corporation that paid the $200,000 dividend to Sampson Company.

2. The net accounts receivable written off by Sampson Company in 2006 was $175,000.

3. Sampson Company incurred and paid $210,000 in 2006 for serving warranty contracts related to the sales of its merchandise.

4. Sampson Company's MACRS tax depreciation for 2006 is $ 480,000.

5. Sampson Company uses FIFO costing for its inventory. Under GAAP financial accounting, Sampson Company's beginning inventory (1-1-06) was $6,000,000 and its ending inventory (12-31-06) was $ 6,400,000. Under the 263A Uniform Capitalization Rules for tax purpose, Sampson Company's beginning inventory (1-1-06) was $6,200,000 and its ending inventory (12-31-06) was $65,000,000. The only material difference between GAAP inventory and tax inventory related to indirect costs that were expensed for GAAP purpose but which were allocated to inventory for tax purposes.

6. Sampson Company does not have any tax carryforwards (e.g., NOLs) from 2005.

What is Sampson Company's Taxable income (after taking into account any net operating loss or other special educations) for calendar year 2006?


Solution Summary

The solution examines Sampson Company's MACRS tax depreciation for 2006.