Question
Spydaman, Inc. reported pretax book income of $395,000 in 2021, its first year of operations. During the current year, the reserve for bad debts decreased
Spydaman, Inc. reported pretax book income of $395,000 in 2021, its first year of operations. During the current year, the reserve for bad debts decreased by $2,970. In addition, tax depreciation was less than book depreciation by $17,500. For financial statement purposes, Spydaman deducted a fine of $14,000 for a violation of an OSHA standard. Finally, the Company received $23,700 of tax-exempt municipal bond interest.
Answer the following questions:
a. What items listed above would represent temporary differences for income tax purposes?
b. What items listed above would represent permanent differences for income tax purposes?
c. What items listed above would represent favorable (both temporary and permanent) differences for income tax purposes?
d. What would be Spydamans current year taxable income and income tax expense (assuming a 21% tax rate?)
e. What would Spydamans deferred tax asset or liability be at the end of the year?
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