Question
You have been assigned to compute the income tax provision for Motown Memories Inc. (MM) as of December 31, 2014. The companys federal income tax
You have been assigned to compute the income tax provision for Motown Memories Inc. (MM) as of December 31, 2014. The companys federal income tax rate is 34 percent. The companys income statement for 2014 is provided below: |
Motown Memories Inc. | ||
Statement of Operations at December 31, 2014 | ||
Net sales | $ | 50,000,000 |
Cost of sales | 28,000,000 | |
Gross profit | $ | 22,000,000 |
Compensation | $ | 2,000,000 |
Selling expenses | 1,500,000 | |
Depreciation and amortization | 4,000,000 | |
Other expenses | 500,000 | |
Total operating expenses | $ | 8,000,000 |
Income from operations | $ | 14,000,000 |
Interest and other income | 1,000,000 | |
Income before income taxes | $ | 15,000,000 |
You identified the following permanent differences: |
Interest income from municipal bonds: | $ | 50,000 |
Nondeductible meals and entertainment expenses: | $ | 20,000 |
Domestic production activities deduction: | $ | 250,000 |
Nondeductible fines: | $ | 5,000 |
MM prepared the following schedule of temporary differences from the beginning of the year to the end of the year: |
Motown Memories Inc. | |||||
Temporary Difference Scheduling Template | |||||
Taxable Temporary Differences | BOY Cumulative T/D | Beginning Deferred Taxes (@ 34%) | Current Year Change | EOY Cumulative T/D | Ending Deferred Taxes (@ 34%) |
Noncurrent | |||||
Accumulated depreciation | (8,000,000) | (2,720,000) | (1,000,000) | (9,000,000) | (3,060,000) |
Deductible Temporary Differences | BOY Cumulative T/D | Beginning Deferred Taxes (@ 34%) | Current Year Change | EOY Cumulative T/D | Ending Deferred Taxes (@ 34%) |
Current | |||||
Allowance for bad debts | 200,000 | 68,000 | 50,000 | 250,000 | 85,000 |
Reserve forwarranties | 100,000 | 34,000 | 20,000 | 120,000 | 40,800 |
Inventory 263A adjustment | 240,000 | 81,600 | 60,000 | 300,000 | 102,000 |
Total current | 540,000 | 183,600 | 130,000 | 670,000 | 227,800 |
Noncurrent | |||||
Deferred compensation | 50,000 | 17,000 | 10,000 | 60,000 | 20,400 |
Accrued pensionliabilities | 3,000,000 | 1,020,000 | 250,000 | 3,250,000 | 1,105,000 |
Total noncurrent | 3,050,000 | 1,037,000 | 260,000 | 3,310,000 | 1,125,400 |
Total | 3,590,000 | 1,220,600 | 390,000 | 3,980,000 | 1,353,200 |
Required: |
a. | Compute MMs current income tax expense or benefit for 2014. |
b. | Compute MMs deferred income tax expense or benefit for 2014. |
c. | Prepare a reconciliation of MMs total income tax provision with its hypothetical income tax expense in both dollars and rates.(Amounts to be deducted should be indicated by a minus sign. Round your percentage answers to 2 decimal places.) |
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started