In Year1, Monson’s first year of business, Monson reported $460,000 of pretax book (GAAP) income.

Key line items follow:

	GAAP (book income)
Revenue	660,000
Other expenses	(150,000)
Depreciation expense	(40,000)
Penalty expense	(10,000)
Pre-tax book income	460,000

 

• For tax purposes, Monson will deduct $55,000 as depreciation expense (instead of $40,000),

• For tax purposes, the penalty expense is non-deductible (in any year).

• The current and expected future tax rate is 25%. No tax payments were made during the year.

 

3. What is taxable income for Year1?

 

4. What is tax payable for Year1?

 

5. What is the amount of deferred tax reported on the balance sheet at 12/31/Year1? Label it as an asset or liability.

 

6. What will be reported as tax expense on the Year1 income statement?