26. LO.1 Use Figure 24.1 to compute Balboa Corporation’s State F taxable income for the year.
Addition modifications $29,000
Allocated income (total) 25,000
Allocated income (State F) 3,000
Allocated income (State G) 22,000
Tax credits 800
Federal taxable income 90,000
Subtraction modifications 15,000
Apportionment percentage 40%
Tax rate 5%

27. LO.1 Use Figure 24.1 to provide the required information for Warbler Corporation, whose Federal taxable income totals $10 million.
Warbler apportions 70% of its business income to State C. Warbler generates $4 million of nonbusiness income each year, and 30% of that income is allocated to C. Applying the state income tax modifications, Warbler’s total business income this year is $12 million.
a. How much of Warbler’s business income does State C tax?
b. How much of Warbler’s nonbusiness income does State C tax?
c. Explain your results.

28. LO.1 For each of the following items considered independently, indicate whether the circumstances call for an addition modification (A), a subtraction modification (S), or no modification (N) in computing state taxable income. Then indicate the amount of any modification. The starting point in computing State Q taxable income is the year’s
Federal taxable income, before any deduction for net operating losses.
a. Federal cost recovery = $10,000, and Q cost recovery = $15,000.
b. Federal cost recovery = $15,000, and Q cost recovery = $10,000.
c. Federal income taxes paid = $30,000.
d. Refund received from last year’s Q income taxes = $3,000.
e. Local property taxes, deducted on the Federal return as a business expense = $80,000.
f. Interest income from holding U.S. Treasury bonds = $5,000.
g. Interest income from holding Q revenue anticipation bonds = $3,000.
h. Interest income from State P school district bonds = $10,000.
i. Change in the excess of FIFO inventory valuation over the Federal LIFO amount = $6,000. Q does not allow the LIFO method.
j. An asset was sold for $18,000; its purchase price was $20,000. Accumulated Federal cost recovery = $15,000, and accumulated Q cost recovery = $8,000.
k. Dividend income received from State R corporation = $30,000, subject to a Federal dividends received deduction of 70%.

29. LO.1 Perk Corporation is subject to tax only in State A. Perk generated the following income and deductions.
Federal taxable income $300,000
State A income tax expense 15,000
Refund of State A income tax 3,000
Depreciation allowed for Federal tax purposes 200,000
Depreciation allowed for state tax purposes 120,000
Federal taxable income is the starting point in computing A taxable income. State income taxes are not deductible for A tax purposes. Determine Perk’s A taxable income.

30. LO.1 Fellow Corporation is subject to tax only in State X. Fellow generated the following income and deductions. State income taxes are not deductible for X income tax purposes.
Sales $4,000,000
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 250,000
Interest income on Federal obligations 40,000
Interest income on X obligations 30,000
Expenses related to carrying X obligations 2,000
a. The starting point in computing the X income tax base is Federal taxable income.
Derive this amount.
b. Determine Fellow’s X taxable income assuming that interest on X obligations is exempt from X income tax.
c. Determine Fellow’s X taxable income assuming that interest on X obligations is subject to X income tax.

31. LO.4, 5 Joker Corporation owns and operates two facilities that manufacture paper products. One of the facilities is located in State D, and the other is located in State E.
Joker generated $3.2 million of taxable income, consisting of $3 million of income from its manufacturing facilities and a $200,000 gain from the sale of E nonbusiness property. E does not distinguish between business and nonbusiness income, but D apportions business income. Joker’s activities within the two states are outlined below.
State D State E Total
Sales of paper products $3,000,000 $7,000,000 $10,000,000
Property 600,000 1,500,000 2,100,000
Payroll 1,000,000 2,000,000 3,000,000
Both D and E utilize a three-factor apportionment formula, under which sales, property, and payroll are equally weighted. Determine the amount of Joker’s income that is subject to income tax by each state.

32. LO.4, 5 Assume the same facts as in Problem 31, except that under the statutes of both D and E, only business income is subject to apportionment.

33. LO.5 Dillman Corporation has nexus in States A and B. Dillman’s activities for the year are summarized below.
State A State B Total
Sales $1,200,000 $ 400,000 $1,600,000
Property
Average historical cost 500,000 300,000 800,000
Average accumulated depreciation (300,000) (100,000) (400,000)
Payroll 2,500,000 500,000 3,000,000
Rent expense –0– 35,000 35,000
Determine the apportionment factors for A and B assuming that A uses a three-factor apportionment formula under which sales, property (net depreciated basis), and payroll are equally weighted and B employs a single-factor formula that consists solely of sales.
State A has adopted the UDITPA with respect to the inclusion of rent payments in the property factor.

34. LO.5 Assume the same facts as in Problem 33, except that A uses a single-factor apportionment formula that consists solely of sales and B uses a three-factor apportionment formula that equally weights sales, property (at historical cost), and payroll. State B does not include rent payments in the property factor.

35. LO.5 Assume the same facts as in Problem 33, except that both states employ a three factor formula, under which sales are double-weighted. The property factor in A is computed using historical cost, while this factor in B is computed using the net depreciated basis. Neither A nor B includes rent payments in the property factor.

36. LO.5 Roger Corporation operates in two states, as indicated below. This year’s operations generated $400,000 of apportionable income.
State A State B Total
Sales $800,000 $200,000 $1,000,000
Property 300,000 300,000 600,000
Payroll 200,000 50,000 250,000
Compute Roger’s State A taxable income assuming that State A apportions income based on a:
a. Three-factor formula, equally weighted.
b. Double-weighted sales factor.
c. Sales factor only.

37. LO.5, 9 State E applies a throwback rule to sales, while State F does not. State G has not adopted an income tax to date. Clay Corporation, headquartered in E, reported the following sales for the year. All of the goods were shipped from Clay’s E manufacturing facilities.
Customer Customer’s Location This Year’s Sales
ShellTell, Inc. E $ 75,000,000
Tourists, Ltd. F 40,000,000
PageToo Corp. G 100,000,000
U.S. Department of
Homeland Security All 50 states 85,000,000
Total $300,000,000
a. Determine Clay’s sales factor in those states.
b. Comment on Clay’s location strategy using only your tax computations.