Answer:
Star Corp
A.
Pretax net income from continuing operations = $1,000,000
Add Accrued Vacation $50,000
Deduct additional Tax Depreciation $100,000
Deduct Dividend received deductions $150,000
Net Taxable Income = $800,000
Income Tax expenses = 21% x $800,000 = $168,000
Income tax Expense provision based on book Net income = 21% x $1,000,000 = $210,000
Income tax benefit = $168,000 minus $210,000 = $42,000 (benefit)
B.
Deferred income tax expense =
Income tax Provision = $210,000
Less income tax expense = $168,000
Differed income tax (benefit) = $42,000
C.
Reconciliation
Book Net income = $1,000,000
Tax rate = 21%
Tax expense provision = $210,000...(a)
Pretax net income from continuing operations = $1,000,000
Add Accrued Vacation $50,000
Deduct additional Tax Depreciation $100,000
Deduct Dividend received deductions $150,000
Taxable Net income (adjusted) = $800,000
Tax rate = 21%
Tax expense provision = $168,000......(b)
Difference (a) minus (b) = $42,000 . This is a benefit to the firm (star corp) because its actual tax liability is less than what it provided for because of net deductibles not accounted for in its income statement.
