Question
Year 1 is Companys first year of business. Company rents part of its office building to earn extra revenue. In December of Year 1, Company
Year 1 is Companys first year of business. Company rents part of its office building to earn extra revenue. In December of Year 1, Company received a prepayment of $10,000 for January, Year 2 rent. For income tax purposes, this $10,000 is year 1 revenue (subject to income tax in Year 1). However, for GAAP, this amount will be revenue in Year 2. No other temporary differences exist between GAAP and tax. Company has taxable income of $100,000 in Year 1 and a tax rate of 20% for all years. Companys Year 1 income tax expense is:
a. 22,000
b. 18,000
c. 20,000
d. 10,000
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