Question
Alexandria has also requested that you compute the income tax provision for Florida Chocolate Inc. as of December 31, 20x3. The companys income statement for
Alexandria has also requested that you compute the income tax provision for Florida Chocolate Inc. as of December 31, 20x3. The companys income statement for 20x3 is provided below:
Florida Chocolate Inc. | |||||
Statement of Operations | |||||
at December 31, 20x3 | |||||
Net sales | $20,000,000 | ||||
Cost of sales | 12,000,000 | ||||
Gross profit | 8,000,000 | ||||
Compensation | 500,000 | ||||
Selling expenses | 750,000 | ||||
Depreciation and amortization | 1,250,000 | ||||
Other expenses | 1,000,000 | ||||
Total operating expenses | 3,500,000 | ||||
Income from operations | $4,500,000 | ||||
Interest and other income | 25,000 | ||||
Income before income taxes | $4,525,000 |
You have identified the following permanent differences:
Interest income from municipal bonds $10,000
Nondeductible stock compensation 5,000
Nondeductible fines 1,000
Florida Chocolate Inc. prepared the following schedule of temporary differences from the beginning of the year to the end of the year:
Florida Chocolate Inc. | |||||||||
Temporary Difference Scheduling Template | |||||||||
BOY | Current | EOY | EOY | ||||||
Taxable | Deferred | Year | Cumulative | Deferred | |||||
Temporary Differences | Taxes | Change | T/D | Taxes | |||||
Accumulated depreciation | (1,050,000) | (500,000) | (5,500,000) | (1,155,000) | |||||
| BOY | Current | EOY | EOY | |||||
Deductible | Deferred | Year | Cumulative | Deferred | |||||
Temporary Differences | Taxes | Change | T/D | Taxes | |||||
Allowance for bad debts | 21,000 | 10,000 | 110,000 | 23,100 | |||||
Prepaid income | 0 | 20,000 | 20,000 | 4,200 | |||||
Deferred compensation | 10,500 | 10,000 | 60,000 | 12,600 | |||||
Accrued pension liabilities | 105,000 | 100,000 | 600,000 | 126,000 | |||||
Total | 136,500 | 140,000 | 790,000 | 165,900 | |||||
a. Compute Florida Chocolate Inc.s current income tax expense or benefit for 20x3.
b. Compute Florida Chocolate Inc.s deferred income tax expense or benefit for 20x3.
c. Prepare a reconciliation of Florida Chocolate Inc.s total income tax provision with its hypothetical income tax expense of 21 percent in both dollars and rates.
Please use the provided excel template to calculate the below:
A. | Florida Chocolate Inc. current income tax expense or benefit for 20xx | ||||||
Income before income taxes | |||||||
Interest from municipal bonds | |||||||
Nondeductible stock compensation | |||||||
Nondeductible fines | |||||||
Book equivalent of taxable income | |||||||
Net change in cumulative TTD | |||||||
Net change in cumulative DTD | |||||||
Net change cumulative TD | |||||||
Taxable income | |||||||
x 21% | |||||||
Current tax expense | |||||||
B. | Chocolate Florida Inc. deferred income tax expense or benefit for 20xx | ||||||
Ending balance in TTD | |||||||
Beginning balance in TTD | |||||||
Increase in deferred tax liability | |||||||
Ending balance in DTD | |||||||
Beginning balance in TTD | |||||||
Increase in deferred tax asset | |||||||
Deferred tax expense | |||||||
Deferred tax benefit | |||||||
Net deferred tax expense | |||||||
Tax provision | |||||||
Current income tax expense | |||||||
Deferred income tax expense | |||||||
Total income tax provision | |||||||
Check | |||||||
Book equivalent of taxable income | |||||||
x 21% | |||||||
Total income tax provision | |||||||
C. | Reconciliation of Chocolate Florida Inc. total income tax provision with its hypothetical income tax expense | ||||||
Reconciliation of Effective Tax Rate | Dollars | Percent | |||||
Provision at 21% | |||||||
Tax exempt interest | |||||||
Nondeductible stock compensation | |||||||
Nondeductible fines | |||||||
Provision | |||||||
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