Exercise 1

LTG Corporation is a calendar year accrual basis C-Corporation. The following information has been provided to you.

Book income for Year 2 Meals expense (before 50% disallowance)

Book depreciation expense for Year 2 Tax depreciation expense for Year 2

Book bad debt reserves at Year 1 end Book bad debt reserves at Year 2 end

Federal Tax rate California Tax Rate (assume 100% apportionment)

$1,000,000 40,000

100,000 350,000

70,000 30,000

21% 10%

1. What is the current tax liability for Year 2?

2. What are the deferred tax assets and/or deferred tax liabilities as of Year 2 end?

3. What is the current tax expense for Year 2? Please prepare the journal entry.

4. What is the deferred tax expense for Year 2? Please prepare the journal entry.

5. What is the effective tax rate?