You have been assigned to compute the income tax provision for Motown Memories, Inc. (MM) as of December 31, 2017. The Company€™s federal income tax rate is 34%. The Company€™s Income Statement for 2017 is provided below:

 

You have identified the following permanent differences:

• Interest income from municipal bonds: $50,000
• Nondeductible meals and entertainment expenses: $20,000
• Domestic production activities deduction (DPAD): $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:

a. Compute MM€™s current income tax expense or benefit for 2017.

b. Compute MM€™s deferred income tax expense or benefit for 2017.

c. Prepare a reconciliation of MM€™s total income tax provision with its hypothetical income tax expense in both dollars and rates

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Motown Memories, Inc. Statement of Operations at December 31, 2017 Net sales $50,000,000 28.000.000 22.000.000 Cost of sales Gross profit Compensation Selling expenses Depreciation and amortization Other expenses Total operating expenses Income from operations 2,000,000 1,500,000 4,000,000 500.000 8.000.000 $14,000,000 1.000.000 $15.000.000 Interest and other income Income before income taxes Current Year BOY Beginning EOY Ending Тахаble Temporary Differences Cumulative T/D Deferred Cumulative T/D Deferred Taxes (@ 34%) (2,720,000) Taxes (@ 34%) Change (8,000,000) 200,000 100,000 240,000 (1,000,000) (9,000,000) 250,000 120,000 300,000 (3,060,000) Accumulated depreciation Allowance forbad debts Reservefor warranties Inventory $263A adjustment Deferred compensation 68,000 БО,000 85,000 40,800 102,000 20,400 34,000 20,000 81,600 17,000 60,000 10,000 50,000 Accrued pensionliabilities 3,250,000 3,000,000 1,020,000 250,000 1,105,000 Total 3,590,000 1,220,600 390,000 3,980,000 1,353,200