ACC 85 Accounting for Income Taxes Comprehensive Example #2 Your boss gives you the following information about Gunner Corporation and asks you to compute Gunner's tax provision for 2018 (see specific questions below): Book loss before federal income taxes is $1,000,000 Book depreciation is $200,000 and MACRS depreciation is $300,000 Bad expense for book purposes is $20,000. Bad debt expense for tax purposes is $12,000 Included in book income is $50,000 of tax exempt bond interest. Book income includes $15,000 of non-deductible entertainment expense The corporate tax rate is 20%. Part I 1. What is Gunner's taxable income? 2. What is Gunner's current income tax expense? 3. What is Gunner's deferred tax expense? 4. What is Gunner's total tax expense? 5. Does the difference between book and tax depreciation result in a deferred tax liability or a deferred tax asset on Gunner's balance sheet? 6. Prepare a rate reconciliation Part II Assume your boss tells you that a valuation allowance will be applied to any net deferred tax asset. How does this change your result