Question
Hafnaoui Company reported pretax net income from continuing operations of $992,000 and taxable income of $650,000. The booktax difference of $390,000 was due to a
Hafnaoui Company reported pretax net income from continuing operations of $992,000 and taxable income of $650,000. The booktax difference of $390,000 was due to a $260,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $104,000 due to an increase in the reserve for bad debts, and a $234,000 favorable permanent difference from the receipt of life insurance proceeds. At the end of the year, the reserve for bad debts had a balance of $130,000; the beginning balance in the account was $26,000. Hafnaoui's beginning book (tax) basis in its fixed assets was $1,024,000 ($836,000) and its ending book (tax) basis is $1,560,000 ($1,112,000).
a. Compute Hafnaoui Company's current income tax expense.
b. Compute Hafnaoui Company's deferred income tax expense or benefit.
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