Book-Tax Differences

Conceptualize Corp. is a corporation that provides various animation, graphic design, and imagery support for various forms of media including television commercials, print ads, online media, and major motion pictures. Conceptualize has the following expenses for financial statement purposes. Please determine which of the following transactions may result in a book-tax difference and in what amount.

a) Conceptualize purchases and places 30 computers for digital editing in one of its studios on July 1, 2018. The computers cost $15,000 each at a total cost of $450,000. Conceptualize takes $45,000 in straight line depreciation for the partial year 2018 for book purposes. Assume the computers qualify for bonus depreciation in 2018 and are the only new assets placed into service that year.

b) Conceptualize takes $35,000 in MACRS depreciation and $250,000 in book depreciation on assets placed into service prior to 2018.

c) Conceptualize has an expense for $35,000 in 2018 for fines assessed by the city of New York for using a specialized type of acrylic paint in one of its design studios that was banned because of its impact on the environment.

d) Conceptualize pays $80,000 for client development meals and $150,000 for entertainment in order to maintain relationships with key media industry contacts that send business to its studios and records these expenses on its books.

e) One of Conceptualize’s founders passed away in 2018 and Conceptualize received $2M of income on key employee life insurance based on this death. Conceptualize had paid $7,500 in premiums on this insurance in 2018 prior to the founder’s death. The income and expense associated with this insurance were recorded on Conceptualize’s books.