Part 4: Prepare the roll forward for deferred tax balances as of December 31, 2018, and calculate the deferred tax expense

Part 5: Calculate the total tax expense and the effective tax rate (ETR). Prepare the ETR reconciliation for TNB

Part 6: Determine what journal entries for TNB will be needed to record the 2018 tax provision

Background:

Toledo National Bank Inc. (the Bank or TNB) is a bank operating nationwide with its principal operations, and corporate headquarters in Toledo, OH. TNB offers a full range of banking services to its customers, including online banking, debit/credit cards, mortgages, business and personal loans, and financial planning activities. The Bank was organized and started business activities on January 1, 2017. TNB is a calendar year, accrual method taxpayer, for both book (GAAP) and tax purposes.

TNB Financial & Operating Information: 2018 Federal income tax rate = 21% (enacted as part of 2017 Tax Cuts Job Act or TCJA). 2017 Federal income tax rate prior to TCJA = 35% State of Ohio does not impose a state income tax. No state and local income tax is paid or accrued (ignore Ohio commercial activities tax) TNBs pre-tax income = $1,000,000 TNB has identified the following book tax differences: Pre-tax income includes $80,000 of non-taxable interest income earned on municipal bonds from the City of Sylvania, OH. TNB has accrued $120,000 for legal reserve on fraudulent banking activity for book (GAAP) purposes. None of this legal reserve is currently deductible for federal income tax purposes. TNBs fixed asset ledger shows tax depreciation expense is $80,000 greater than book (GAAP) depreciation expense. Book (GAAP) depreciation expense for 2018 is $300,000 and tax depreciation expense are $380,000. The original cost of TNBs fixed assets (all acquired on January 1, 2017) before any depreciation was taken was $1,800,000. Tax depreciation per the 2017 federal 1120 tax return, line 20, was $480,000. TNB had food and beverage expenses of $40,000. TNBs book (GAAP) expense of reflected a loan loss reserve of $250,000. None of the loan loss reserve is currently deductible for federal income tax purposes.

Toledo National Bank Inc. 2017 Federal 1120 Income Tax Return Line 26, Other Deductions General and Administrative Expenses = $94,000 Business Travel = $20,000 Meals & Entertainment = $10,000 Total to Line 26 = $124,000

Toledo National Bank Inc. 2017 Profit & Loss Statement Return to Provision Adjustment Schedule CEA- B D E=C-D Actual Book- Provision Book- Return to Provision Tax Differences Tax Differences (RTP) Adjustment Tax Return $ $ 30,000 $ $ 30,000 10,000 100,000 Item Interest income Municipal interest Other income Total revenue G&A Expense Sales & Marketing Travel, Meals, Entertainment Loan loss reserve accrual Compensation Interest expense Depreciation Total expense/deductions Pre-tax/taxable income Tax rate Tax Less: credits Cash tax expense P&L 3,000,000 30,000 4,000 3,034,000 94,000 200,000 40,000 100,000 600,000 600,000 400,000 2,034,000 1,000,000 35% 350,000 $ $ $ $ $ $ $ $ $ $ $ (60,000) 50,000 20,000 $ $ 350,000