You have been asked to prepare the 2019 required income tax accounting provision calculations for Graham Corporation (GC), a C Corporation.

You receive the following information:

Deferred tax account balances at beginning of year (12/31/2018):

Deferred tax liability for tax over book depreciation - $500,000

Deferred tax asset for bad debt reserves - $200,000

Deferred tax asset for inventories of $300,000 due to UNICAP adjustments

Deferred tax asset for book reserves related to retiree medical benefits - $500,000

GC has recorded a Valuation Allowance related to retiree medical benefits of $500,000

Graham Corporation has pre-tax book income of $5,000,000 for the year ended 12/31/2019.

GC has earned $200,000 in municipal bond interest

GC has meals and entertainment expenses for book purposes of $100,000

Pre-tax book income includes $1,500,000 in foreign income from a subsidiary (Gunner Singaprore) that is not included in US taxable income, and is taxed at a foreign rate of 10%. Graham Corporation views this income as indefinitely reinvested in the foreign country.

Book depreciation for 2019 is $200,000 and MACRS depreciation is $320,000. In addition, Graham can deduct $500,000 in bonus depreciation expense. The book depreciation for these amounts are included in the amount noted above.

GC increased its reserve for bad debts in 2019. The book expense for bad debts is $120,000 and the tax deduction for bad debts written off is $40,000.

The book expense for future retiree medical benefits is $50,000. GC expects to continue its practice of setting up a Valuation Allowance for any deferred tax asset related to this expense.

GC has a UNICAP adjustment for 2019 that results in an increase in inventory and a decrease in cost of sales of $75,000

In 2019, GC sold an asset and the sale qualifies for the installment sale under IRC Code Section 453. The gain reported for book purposes is $300,000. The gain recognized for tax purposes is $100,000.

GCs state income tax rate is 5% and its US corporate income tax rate is 21%.

Please prepare the following schedules:

US TAX LAW

1. The current tax provision,
2. the deferred tax provision,
3. the 12/31/2019 tax balance sheet accounts, and
4. a rate reconciliation.