The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): Pretax accounting income: $ 150 Pretax accounting income included: Overweight fines (not deductible for tax purposes) 5 Depreciation expense 65 Depreciation in the tax return using MACRS: 112 The applicable tax rate is 25%. There are no other temporary or permanent differences. Franklin's taxable income ($ in millions) is:

$108

Explanation:

The computation of the taxable income is shown below:

= Pre accounting income + Overweight fines (not deductible for tax purposes)  + depreciation expenses - depreciation in the tax return using MACRS

= $150 + $5 + $65 - $112

= $108

We simply added the overweight fines, and depreication expenses and deduct the deprecation in the tax return to the pre accounting income so that the taxable income could arrive

Plus we ignored the applicable tax rate i.e 25%

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