Flip Corporation is subject to tax only in State X. Flip generated the following income and deductions. State income taxes are not deductible for X income tax purposes.
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| Cost of sales | 2,800,000 |
| State X income tax expense | 200,000 |
| Depreciation allowed for Federal tax purposes | 400,000 |
| Depreciation allowed for state tax purposes | 300,000 |
| Interest income on Federal obligations | 50,000 |
| Interest income on X obligations | 30,000 |
| Expenses related to carrying X obligations | 10,000 |
a. The starting point in computing the X income tax base is Federal taxable income.
Derive this amount.
b. Determine Flip’s X taxable income assuming that interest on X obligations is exempt from X income tax.
c. Determine Flip’s X taxable income assuming that interest on X obligations is subject to X income tax.
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