| Course | ACC 455 Corporate Taxation (ACC/455) |
|---|---|
| Week | 2 |
| Paper type | Corporate taxable income computation paper |
| Length | about 1,005 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 455 Week 2
From $1.5 Million of Book Profit to $782,000 of Taxable Income: Computing a Composite Pest Control Corporation's 2025 Federal Taxable Income and Tax
[Student Name]
University of Phoenix
ACC/455: Corporate Taxation
Week 2 Assignment
[Instructor Name]
[Date]
The corporation and all figures are composites written for a model paper; tax rules come from the sources listed and apply to the 2025 tax year.
A composite pest control company, a C corporation, serves homes, restaurants and warehouses in three counties with a fleet of 48 service trucks. In 2025 it recorded revenue of $9.4 million and pretax book income of $1.503 million. Its federal taxable income, however, is about half of that. Book income answers how the business performed; taxable income answers what the Code says the business must report, and the two follow different rules. This paper computes the corporation's 2025 taxable income and tax.
Gross Income
Revenue from services was $9.4 million, and cost of services, including chemicals, bait stations and technicians' direct wages, was $4.1 million, giving gross profit of $5.3 million. The corporation also received $60,000 of dividends from its 5% holding in a publicly traded chemical supplier and $8,000 of interest on municipal bonds. Interest on state and local bonds is excluded from gross income, so it is left out. Gross income is $5.36 million.
Business Deductions
Businesses may deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business (Internal Revenue Service, 2025a). The corporation deducts officer compensation of $620,000, which is reasonable for the two officers' roles, other salaries of $1.45 million, rent of $180,000, interest on its equipment loans of $240,000, state income taxes of $110,000 and other operating expenses, including fuel, insurance and advertising, of $680,000.
Depreciation differs sharply from the books. The corporation bought 12 new service trucks in March 2025 for $900,000. For property acquired and placed in service in 2025 after the date set by the 2025 legislation, 100% bonus depreciation is available, and the corporation elects it, deducting the full $900,000. Depreciation on older assets under the modified accelerated cost recovery system is $260,000 (Internal Revenue Service, 2025b). Tax depreciation totals $1.16 million, compared with book depreciation of $410,000.
Two expense groups are limited. Client lunches cost $36,000; business meals are 50% deductible, so $18,000 is allowed. The corporation spent $22,000 on season tickets to a professional baseball team for entertaining customers; entertainment has not been deductible since 2018, so nothing is allowed. A $15,000 state fine for a pesticide labeling violation and $12,000 of life insurance premiums on the officers, with the corporation as beneficiary, are also nondeductible. Federal income tax is never deductible.
Deductions before the charitable contribution and the dividends received deduction total $4.458 million.
The Charitable Contribution Limit
The corporation donated $90,000 to a regional food bank. A corporation's charitable deduction is limited to 10% of taxable income computed without the charitable deduction, the dividends received deduction and certain carrybacks. That base is $5.36 million less $4.458 million, or $902,000, so the limit is $90,200. The full $90,000 is deductible. Had the donation exceeded the limit, the excess would carry forward for five years.
The Dividends Received Deduction
Because the corporation owns less than 20% of the chemical supplier, it may deduct 50% of the dividends it received, $30,000. The deduction exists to reduce the triple taxation that would otherwise occur when profits pass from one corporation to another before reaching individuals. The 50% of taxable income limit does not apply here because taxable income is well above the dividend amount.
Taxable Income and Tax
Taxable income is $902,000 less the $90,000 charitable deduction and the $30,000 dividends received deduction, or $782,000. At the flat 21% corporate rate, federal income tax is $164,220. The corporation made estimated payments of $170,000 during the year and will receive a small refund or apply it to 2026.
Reconciling to Book Income
The corporation's pretax book income of $1.503 million reconciles to taxable income as follows. Subtract the $8,000 of tax-exempt interest. Add back the nondeductible half of meals, $18,000, the entertainment of $22,000, the fine of $15,000 and the officer life insurance premiums of $12,000. Subtract the $750,000 by which tax depreciation exceeds book depreciation and the $30,000 dividends received deduction. The result is $782,000. On Form 1120, these differences appear on Schedule M-1, the subject of the next week's work.
Officer Compensation
The $620,000 paid to the two officers deserves a word, because in a closely held C corporation salary is deductible while dividends are not. The IRS can challenge compensation that exceeds what comparable businesses pay for similar work and treat the excess as a disguised dividend, which would raise taxable income. The corporation's board approved the salaries in advance, and its outside accountant compared them with a regional survey of pest control and facility service firms of similar size; both officers work full time, one running operations and one sales. That record is the corporation's best defense if the amount is ever questioned.
What Would Change the Result
Two corporate rules did not apply this year but are worth noting. Had the corporation lost money, its net operating loss would carry forward indefinitely but could offset only 80% of taxable income in a later year, and it could not be carried back. And had it sold its chemical supplier shares at a loss, the capital loss could offset only capital gains, carrying back three years and forward five, since corporations cannot deduct capital losses against ordinary income.
Effect of the Rules
Nearly all of the gap between book and taxable income comes from bonus depreciation, a timing difference that will reverse as the trucks are depreciated for books in later years with no tax deduction left. Graham et al. (2012) note that such timing differences create deferred tax liabilities on the financial statements, so the corporation's income statement will report a tax expense closer to 21% of book income than the $164,220 it pays this year.
Conclusion
The pest control corporation's taxable income of $782,000 resulted from excluding municipal interest, taking bonus depreciation, limiting meals, disallowing entertainment, fines and officer life insurance and applying the charitable limit and the dividends received deduction in the proper order. The 21% rate produced a federal tax of $164,220.
References
Graham, J. R., Raedy, J. S., & Shackelford, D. A. (2012). Research in accounting for income taxes. Journal of Accounting and Economics, 53(1-2), 412-434. https://doi.org/10.1016/j.jacceco.2011.11.006
Internal Revenue Service. (2025a). Instructions for Form 1120: U.S. corporation income tax return. https://www.irs.gov/instructions/i1120
Internal Revenue Service. (2025b). How to depreciate property (Publication 946). https://www.irs.gov/publications/p946
What the ACC 455 Week 2 instructions ask
ACC 455 Week 2 generally asks students to compute corporate taxable income and tax liability. Typical requirements include identifying gross income and exclusions, applying business deductions under the ordinary and necessary standard, handling depreciation including bonus depreciation and Section 179, limiting meals and disallowing entertainment, applying the charitable contribution limit, computing the dividends received deduction, treating net operating losses and capital losses under corporate rules and applying the 21% rate. Some prompts ask for a completed Form 1120 page or a reconciliation to book income. The paper should show every step in order, cite the Code or IRS guidance for each rule and explain why each adjustment is made.
How this ACC 455 Week 2 example is built
A pest control company works well because its expenses include most of the common special rules: new trucks eligible for bonus depreciation, client lunches, sports tickets, a donation to a local food bank, dividends from a small stock holding and a state fine. The paper computes gross income first, then lists deductions in groups, noting where each rule limits the amount. The charitable limit and the dividends received deduction are computed in the required order, since both depend on taxable income measured before them. Tax is then calculated, and a final section reconciles book income to taxable income, previewing the Schedule M-1 topic that follows. Each rule is explained briefly with its source.
ACC 455 Week 2 grading rubric: where the points go
The grading for this computation usually focuses on correct inclusion and exclusion of income, correct application of each limit and correct ordering. Faculty check that tax-exempt interest is excluded, that meals are limited to 50% and entertainment disallowed, that fines and federal income tax are not deducted, that the charitable limit is applied to taxable income computed before the charitable deduction and the dividends received deduction and that the dividends received percentage matches the ownership level. The tax must be computed at 21%. A reconciliation to book income that ties out demonstrates command of the material. Clear organization and citations of the Code or IRS guidance make up the rest of the rubric.
ACC 455 Week 2 help: mistakes to avoid
The ordering mistake is the most common one in ACC 455 Week 2: students subtract the dividends received deduction before computing the charitable limit, or use book income as the base. Compute taxable income before both, apply the 10% limit, then take the dividends received deduction. Another error is deducting 100% of client meals or any entertainment. Students also deduct fines or federal income tax. Watch for tax-exempt interest in book income. Use the depreciation actually claimed for tax, which may be much larger than book depreciation after bonus depreciation. Show the tax at 21% with no brackets. Finally, reconcile to book income so the reader can see where each difference arose.
Related ACC 455 sample papers
Other ACC 455 week samples
- ACC 455 Week 1: History and Structure of Federal Tax
- ACC 455 Week 3: Credits and Book-Tax Differences
- ACC 455 Week 4: Formation, Capital and Distributions
- ACC 455 Week 5: Tax Research and Policy
More BS in Accounting sample papers
- ACC 421 Week 2: Income Statement and Balance Sheet
- ACC 422 Week 2: Depreciation, Impairment, Intangibles
- ACC 423 Week 2: Investments and Revenue Recognition
- ACC 456 Week 2: Gross Income and Exclusions
ACC 455 Week 2 questions, answered
What does ACC/455 Week 2 usually ask for?
It usually asks students to compute a C corporation's taxable income and federal income tax, applying exclusions, business deductions and special limits such as the charitable contribution limit and the dividends received deduction.
Where can I find a free ACC 455 Week 2 sample paper?
The pest control corporation's full 2025 computation, with the charitable limit, the dividends received deduction and a book-to-tax reconciliation, appears here with comments in the margin. Send your case and the first paper we draft for it costs nothing.
How is the corporate charitable contribution limit computed?
For 2025, deductions are generally limited to 10% of taxable income computed without the charitable deduction, the dividends received deduction and certain carrybacks; the excess carries forward five years.
What is the dividends received deduction?
It lets a corporation deduct 50%, 65% or 100% of dividends from domestic corporations, depending on whether it owns less than 20%, at least 20% or at least 80% of the payer.
Are business meals deductible for corporations?
Business meals are generally 50% deductible if the business connection and other requirements are met, while entertainment such as sporting events is not deductible.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official University of Phoenix document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
Request this one custom, free · All ACC 455 week samples · All courses