Item 3

Costello Corporation reported pretax book income of $500,500. During the current year, the reserve for bad debts increased by $6,000. In addition, tax depreciation exceeded book depreciation by $40,500. Finally, Costello received $3,250 of tax-exempt life insurance proceeds from the death of one of its officers. Costello's deferred income tax expense or benefit would be:

Multiple Choice

$7,245 net deferred tax expense.

$7,245 net deferred tax benefit.

$7,895 net deferred tax benefit.

$7,928 net deferred tax expense.