Problem 13-10 Converting from taxable income to book income (LO 13-2, LO 13-4)

Mozart Inc.s $98,000 taxable income for 2017 will be taxed at the 35% corporate tax rate. For tax purposes, its depreciation expense exceeded the depreciation used for financial reporting purposes by $27,000. Mozart has $45,000 of purchased goodwill on its books; during 2017, the company determined that the goodwill had suffered a $3,000 impairment of value for financial reporting purposes. None of the goodwill impairment is deductible for tax purposes. Mozart purchased a three-year corporate liability insurance policy on July 1, 2017, for $36,000 cash. The entire premium was deducted for tax purposes in 2017.

Required:

Determine Mozarts pre-tax book income for 2017.

Determine the changes in Mozarts deferred tax amounts for 2017.

Calculate tax expense for Mozart Inc. for 2017.

1.Pretax book income

2.Increase in deferred tax liability

3.Income tax expense