You have been assigned to compute the income tax provision for Motown Memories Inc. (MM) as of December 31, 2016. The companys federal income tax rate is 34 percent. The companys income statement for 2016 is provided below:

Motown Memories Inc.

Statement of Operations at December 31, 2016

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 for warranties

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 pension liabilities

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

a. Compute MMs current income tax expense or benefit for 2016. b. Compute MMs deferred income tax expense or benefit for 2016.

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.)

Reconciliation of Effective Tax Rate	Dollars	Percent
Income before income taxes			%
Interest from municipal bonds			%
Nondeductible M & E			%
DPAD			%
Nondeductible fines			%
Income tax provision			%