77. You have been assigned to compute the income tax provision for Motown Memories Inc. (MM) as...
Question:
77. You have been assigned to compute the income tax provision for Motown Memories Inc. (MM) as of December 31, 2019. The company’s income statement for 2019 is provided below:
Motown Memories Inc. Statement of Operations at December 31, 2019 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 20,000 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 Differences Scheduling Template Taxable Temporary Differences Beginning Deferred Taxes Current Year Change EOY Cumulative T/D EOY Deferred Taxes Accumulated depreciation $(1,680,000) $(1,000,000) $(9,000,000) $(1,890,000)
Deductible Temporary Differences BOY Deferred Taxes Current Year Change EOY Cumulative T/D EOY Deferred Taxes)
Allowance for bad debts $ 42,000 $ 50,000 $ 250,000 $ 52,500 Reserve for warranties 21,000 20,000 120,000 25,200 Inventory
§263A adjustment 50,400 60,000 300,000 63,000 Deferred compensation 10,500 10,000 60,000 12,600 Accrued pension liabilities 630,000 250,000 3,250,000 682,500 Total $753,900 $390,000 $3,980,000 $835,800 Required:
a. Compute MM’s current income tax expense or benefit for 2019.
b. Compute MM’s deferred income tax expense or benefit for 2019.
c. Prepare a reconciliation of MM’s total income tax provision with its hypothetical income tax expense of 21% in both dollars and rates.
Step by Step Answer:
Taxation Of Individuals And Business Entities 2020
ISBN: 9781259969614
11th Edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver