Extra Corporation was formed in 2005. It is based in Texas and operates throughout the US southeast. Extra is owned by the Xavier family, onethird each by sister Carol (age 55), sister Joan (age53), and brother Buddy (age 49). The company controls over $800 million in productive assets, most of which are located in Texas. Extra started out as a provider of materials to the manufacturers of PDAs like the Palm Pilot, and now it performs the same functions for various smartphone manufacturers like Samsung. The industry is concentrated among about a halfdozen competitors, most of which are located outside of the US. Extra has used its favorable location and low wage structure to remain profitable in most years, but there were large operating losses in a few prior years. The Xaviers fear that the environmental problems created by its production processes will attract incremental US federal taxes, fines, and penalties in the next few years. Accordingly, the entity projects that it will show net book and tax losses for the next two to four years, after which regular profitability will return. Extra uses GAAP for its financial statements; although it is not yet publicly traded, the entitys lenders keep a close watch on annual book income/loss. The corporation employs a tax department of thirty seven professionals, and an internal audit function includes twentyfive permanent positions. Extra uses your firm for its outside tax work, most of which is multijurisdictional tax planning, including the income tax return that it files with the federal government, seven states, and two cities. Extras statutory tax rates are 21 percent federal. Extra generates no foreignsource income or deductions at this point. No tax rate changes have been enacted that will apply in future years. Extra does not record a valuation allowance against its deferred tax assets in the current reporting period. Extra holds only one carryforward to this tax year, for a federal NOL. Every year, there also is an amount for book cost of goods sold that are added to the unicap balance. Your present task is to convert the trial balance numbers into a worksheet that calculates both the current federal tax payable, and the total tax provision for Extra this year. The book trial balance has been prepared and is presented in summary form with annotations below.

Extra Corporation

Trial Balance Data, Condensed (in millions $)

With Annotations

Sales	$ 4,800
COGS	2,700	$ 2,100
Addition to bad debt reserve	50		Specific write-offs of accounts	$ 20
Advertising Costs	70		Includes federal and state lobbying costs	5
Depreciation	95		MACRS allowed	130
Fines paid for environmental damage	55
Legal and accounting fees	180
meals	60
Other salaries , wages, benefits	750
TAXES - Sales, property, excise	120
Utility costs	40
Vacation costs accrued	125		Vacation costs actually incurred	75
Pre-tax book profits		$ 555

Notes re tax amounts (in millions $)

State and federal NOL carryforward into the current tax year	75
Book cost of goods sold that are added to unicap balance for this tax year	190

Assignment

1. Identify the booktax differences that are apparent from the Extra trial balance. Classify them as

temporary or permanent. Use a format provided for this purpose. A few sample entries have

been included in the template.

2. Use the trial balance data to construct Extras tax expense (tax provision) for the year. First

determine the current tax payable amounts that will be reported on the years tax returns. Then

add the deferred tax items to compute the total income tax provision. Use a provided format.

Make certain that your classifications of the booktax differences match those that you

developed in Part 1.

3. Construct the journal entry to record Extras current and deferred tax expense for the year.