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 TCIA = 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) TNB's pre-tax income = $1,000,000 TNB has identified the following book tax differences: o Pre-tax income includes $80,000 of non-taxable interest income earned on municipal bonds from the City of Sylvania, OH. o 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. TNB's 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 TNB's 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. Page 1 of 4 IT THE UNIVERSITY OF TOLEDO 1873 o TNB had food and beverage expenses of $40,000. O TNB's 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. Requirements: Part 1: Calculate TNB's current tax expense for 2018 Part 2: Determine the impact of prior year 2017 return to provision (RTP) adjustments on the current year tax expense TNB's 2017 federal 1120 tax return was filed during 2018 and the 2017 RTP adjustments are included with the 2018 tax provision calculation Part 3: Calculate the total current tax expense for 2018 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 Part 7: Prepare a tax footnote for TNB that will be included in its Annual Report, expected to be filed by March 2019, for the business activity covering calendar year 2018. You will want to research the elements for a tax footnote - elements can be found by researching tax footnote disclosure statements from publicly traded banking institutions. See example from course text also. 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 C=A-B Actual Book Provision Book Tax Differences Tax Differences E=C-D Return to Provision (RTP) Adjustment Tax Return 30,000 $ S $ 30,000 $ 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 $ $ 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 $ 10,000 100,000 (60,000) 50,000 20,000 350,000 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 TCIA = 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) TNB's pre-tax income = $1,000,000 TNB has identified the following book tax differences: o Pre-tax income includes $80,000 of non-taxable interest income earned on municipal bonds from the City of Sylvania, OH. o 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. TNB's 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 TNB's 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. Page 1 of 4 IT THE UNIVERSITY OF TOLEDO 1873 o TNB had food and beverage expenses of $40,000. O TNB's 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. Requirements: Part 1: Calculate TNB's current tax expense for 2018 Part 2: Determine the impact of prior year 2017 return to provision (RTP) adjustments on the current year tax expense TNB's 2017 federal 1120 tax return was filed during 2018 and the 2017 RTP adjustments are included with the 2018 tax provision calculation Part 3: Calculate the total current tax expense for 2018 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 Part 7: Prepare a tax footnote for TNB that will be included in its Annual Report, expected to be filed by March 2019, for the business activity covering calendar year 2018. You will want to research the elements for a tax footnote - elements can be found by researching tax footnote disclosure statements from publicly traded banking institutions. See example from course text also. 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 C=A-B Actual Book Provision Book Tax Differences Tax Differences E=C-D Return to Provision (RTP) Adjustment Tax Return 30,000 $ S $ 30,000 $ 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 $ $ 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 $ 10,000 100,000 (60,000) 50,000 20,000 350,000