Adams Corporation Owns and Operates Two Manufacturing Facilities, One in State

question 60

Multiple Choice

Adams Corporation owns and operates two manufacturing facilities, one in State X and the other in State Y. Due to a temporary decline in the corporation's sales, Adams has rented 20% of its Y facility to an unaffiliated corporation. Adams generated $1,000,000 net rental income and $5,000,000 income from manufacturing. Adams is incorporated in Y. For X and Y purposes, rental income is classified as allocable nonbusiness income. By applying the statutes of each state, Adams determined that its apportionment factors are .65 for X and .35 for Y.
Adams's income attributed to X is:

• A) $0.
• B) $3,250,000.
• C) $3,900,000.
• D) $5,000,000.
• E) $6,000,000.

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Definitions:

Deferred Income Taxes

A liability on the balance sheet that results from differences in the timing of recognition of income and expenses for tax and financial reporting purposes.

Straight Line Amortization

A method of allocating the cost of an intangible asset over its useful life in equal annual installments.

Effective Tax Rate

The actual rate at which an individual or a corporation is taxed, calculated by dividing the total tax paid by the taxable income.

Consolidated Balance Sheet

A financial statement showing the combined assets, liabilities, and equity of a parent company and its subsidiaries.