Question
You have been assigned to compute the income tax provision for a corporation. The companys income statement for 2017 is as follows: Net Sales 151,730,000
You have been assigned to compute the income tax provision for a corporation. The companys income statement for 2017 is as follows:
Net Sales 151,730,000
Cost of Sales 103,410,000
Gross Profit 48,320,000
Other Income:
Dividends 2,300,000
Interest 1,113,000
Total Other Income 3,413,000
Gross Income 51,733,000
Expenses:
Compensation 14,100,000
Depreciation 2,913,000
Charitable Donations 63,000
Meals and Entertainment 164,800
Other Expenses 2,200,000
Total Expenses 19,440,800
Pre-tax Income 32,292,200
You have identified the following:
Interest from municipal bonds 63,000
Dividend Received Deduction 1,610,000
DPAD 230,000
Corporation prepared the following schedule of temporary differences from the beginning of the year to the end of the year:
Taxable Temp Differences | BOY Cumulative T/D | Beginning Deferred Taxes @ 34% | Current Year Change | EOY Cumulative T.D. | Ending Deferred Taxes @ 34% |
Accum. Depre | (5,175,000) | (1,759,500) | (845,000) | (6,020,000) | (2,046,800) |
Total | (5,175,000) | (1,759,500) | (845,000) | (6,020,000) | (2,046,800) |
Deductible Temporary Differences | BOY Cumulative T/D | Beginning Deferred Taxes @ 34% | Current Year Change | EOY Cumulative T.D. | Ending Deferred Taxes @34% |
Allowance for Bad Debts | 115,000 | 39,100 | 17,500 | 132,500 | 45,050 |
Accrued Warranties | 157,500 | 53,550 | 63,000 | 220,500 | 74,970 |
Charitable Contributions | 111,000 | 37,740 | 34,500 | 145,500 | 49,470 |
Deferred Compensation | 425,000 | 144,500 | (212,000) | 213,000 | 72,420 |
Total | 808,500 | 274,890 | (97,000) | 711,500 | 241,910 |
Required:
1. Compute the current income tax expense or benefit for the corporation assuming a 34% tax rate.
2. Compute the corporation deferred income tax expense or benefit.
3. Prepare a reconciliation of the corporation total income tax provision with its hypothetical income tax expense in both dollars and rates (compute the rate to the nearest hundredth of a percent (e.g., 31.23%)).
4. Assume the corporation tax rate for the current year decreased to 25%. Re-compute the corporation deferred income tax expense or benefit for 2017 using the template below (FILL IN THE BLANKS):
Taxable Temp Differences | BOY Cumulative T/D | Beginning Deferred Taxes @ 34% | Current Year Change | EOY Cumulative T.D. | Ending Deferred Taxes @25% |
Accumulated Depreciation | (5,175,000) | (1,759,500) | (845,000) | (6,020,000) | |
Total | (5,175,000) | (1,759,500) | (845,000) | (6,020,000) | |
Deductible Temporary Differences | BOY Cumulative T/D | Beginning Deferred Taxes @ 34% | Current Year Change | EOY Cumulative T.D. | Ending Deferred Taxes @25% |
Allowance for Bad Debts | 115,000 | 39,100 | 17,500 | 132,500 | |
Accrued Warranties | 157,500 | 53,550 | 63,000 | 220,500 | |
Charitable Contributions | 111,000 | 37,740 | 34,500 | 145,500 | |
Deferred Compensation | 425,000 | 144,500 | (212,000) | 213,000 | |
Total | 808,500 | 274,890 | (97,000) | 711,500 |
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