Red Corporation has the following preliminary trial balance, before recording the tax provision.

		2019		2020
Cash	$	170,300	$	185,750
Accounts Receivable		153,000		540,000
Allowance for bad debts		(12,000)		(17,500)
Fixed Assets		850,000		950,000
Accumulated Depreciation		(200,000)		(350,000)
Deferred Tax Asset
Accounts Payable		(654,100)		(434,550)
Accrued Vacation		(30,000)		(10,500)
Incentive Bonus Payable		(80,000)		(80,000)
Accrued Payroll		(25,000)		(34,000)
Income Taxes Payable		(2,000)		(20,000)
Deferred Tax Liability		(35,285)		(35,285)
APIC		(60,000)		(87,000)
Common Stock		(10,000)		(10,000)
Retained Earnings		(64,915)		(64,915)
Revenue				(3,360,700)
Payroll Expense				450,000
Purchases				110,000
Insurance				350,000
Officers Life insurance				2,700
Payroll Taxes				450,000
Bad Debt Expense				9,500
Travel				50,000
Meals and Entertainment				60,000
Rent				650,000
Office Supplies				600
Depreciation				150,000
Marketing Costs				125,000
Other Expenses				350,000
Penalties				8,000
Interest Income				(3,100)
Interest Expense				48,000
Income tax Expense				18,000

Other facts for Red Corporation:

• The federal statutory income tax rate is 21% for both years.
• Red Corporation operates in multiple states. The weighted average statutory state income tax rate is 7% for both years.
• Book income including preliminary income tax expense of $18,000 is $532,000.
• Tax depreciation for the year ended 2020 is $500,000.
• Red Corporation's cost basis in fixed assets for book and tax is the same.
• Red Corporation's pre-tax temporary difference in fixed assets at year-end 2019 was $175,000 book>tax basis.
• None of Red Corporation's 2019 vacation accrual was paid within the first 2.5 months of 2020, and none of the 2020 vacation accrual is expected to be paid in the first 2.5 months of 2021.
• All of Red Corporation's 2019 bonuses and payroll were paid out within the first 2.5 months of 2020, and Red Corporation's expectation is to pay this again in 2021.
• Red Corporation is the beneficiary of the officers' life insurance contract(s).
• Interest income is from other than municipal bonds, so is taxable.

REQUIREMENTS: Using the trial balance and the above information, complete the following. (NOTE: Show your work and calculation process for each of the question)

1. Compute 2020 federal taxable income.

2. Compute the state statutory income tax rate net of the federal benefit.

(State statutory rate net of federal benefit to four decimal places, e.g. .2111)

3. Calculate the total 2020 current income tax provision.

(Total current income tax expense is ________)

4. Complete the inventory of deferreds using the template below.

Inventory of Deferreds
		Pre-tax 2019	Current Activity	Pre-tax 2020	Tax-effected 2020
Insert temp differences here
Total pre-tax
Tax Rate
Total tax-effected

Tax-effected DTL balance at 12/31/20 is _________

5. Compute the total 2020 deferred income tax provision. (Deferred income tax expense)

6. Compute the 2020 effective tax rate

(Effective tax rate to four decimal places, e.g. .2111)

7. Complete the 2020 effective tax rate reconciliation using the template below

Effective Tax Rate Reconciliation
		Red
		Pre-tax	Tax-effected
Pretax book income
State income tax expense
Permanent differences
Tax expense

Total income tax expense is _________

PART II:

Red Corp acquired 100% of the shares of Green Corp during 2020.

Following are the bases in assets acquired after initial purchase accounting but prior to the computation of deferred taxes.

Green Corp is a corporate entity domiciled in Mexico and is taxed at a statutory rate of 30%.

Red Corp did not make an election pursuant to IRC section 338 with respect to the acquisition of Green Corp.

		Book	Tax
Cash		450,000	450,000
Accounts
Receivable		1,500,000	1,750,000
Inventory		2,250,000	2,750,000
Fixed Assets		5,800,000	2,250,000
Intangible Assets		8,000,000
Goodwill		2,000,000

REQUIREMENTS:

• Using this information about Green determine the journal entry to record the net deferred asset or liability acquired. (You may extend the table of basis information provided to perform your calculation.)

• Green Corp, domiciled in Mexico and taxed at 30%, computed 2020 taxable income as follows.

Pretax book income		1,200,000
Non-deductible expenses		125,000
Temporary differences		(250,000)
Taxable income		1,075,000

8. Using the above information and information previously computed for Red + Green:

• Compute Red's worldwide (consolidated) income tax expense, including Green.

Red + Green worldwide tax expense___________

9. Reconcile Red's worldwide effective tax rate, including Green, using the table below.

	Red		Green		Total
	Pre-tax	Tax-effected		Pre-tax	Tax-effected		Tax-effected
Pretax book income
State income tax expense
Permanent differences
Foreign income taxed at a higher rate
Tax expense