Exercise 3

Help me with exercise 3

Book income for Year 2 $2,000,000 Foreign Derived Intangible Income Deduction $2,500,00

Accumulated book depreciation at Year 1 end $700,000

Accumulated tax depreciation at Year 1 end $800,000

Book depreciation expense for Year 2 $500,000

Tax depreciation expense for Year 2 $900,000

Accumulated book depreciation at Year 2 end $2,000,000

Accumulated tax depreciation at Year 2 end $2,500,000

Reserve for bad debt at Year 1 end Reserve for bad debt at Year 2 end $60,000

Accrued vacation (no payment w/in 2.5 mos.) as of Year 1 end Accrued vacation (no payment w/in 2.5 mos.) as of Year 2 end $100,000

Interest capitalized for books, deductible for tax, Year 1 0

Interest capitalized for books, deductible for tax, Year 2 $80,000

Loss carryforward as of Year 1 end $1,300,000 Loss carryforward as of Year 1 end on a more likely than not basis 900,000

Assume the Company did not record any UTB as of Year 1 end as part of the year end provision analysis (i.e. gross NOL DTA was 1,300,000 as of Year 1 end) 35%

Spartans Corp. Statutory tax rate as of Year 1end 35% Spartans Corp. estimated Statutory tax rate for Year 2 21%

Determine Spartans Corp. ASC 740 provision for Year 2 (current and deferred provision as well as the current tax liability and deferred tax asset/liability balance) and record the journal entry.

* Consider preparing a proof of total tax provision by preparing a rate reconciliation.