Question

Cass Corporation reported pretax book income of $10,840,000. During the current year, the reserve for bad debts increased by $170,000. In addition, tax depreciation exceeded book depreciation by $300,000. Cass Corporation sold a fixed asset and reported book gain of $73,500 and tax gain of $117,000. Finally, the company received $258,000 of tax-exempt life insurance proceeds from the death of one of its officers. Compute the company’s current income tax expense or benefit for 2010

Answer 1

Answer:

10,970,000 x 21% = 2,303,700‬ income tax expense

10,755,000 x 21% = 2,258,55‬0 income tax payable

Explanation:

permanent difference:

sale of fixed asset          (117,000-73,500)       43,000

tax-exempt life insurance proceeds.            (258,000)

total                                                                  (215,000)

temporary difference ( which generates tax liability or benefit )

 170,000 bad debt expense

(300,000) higher tax depreciation

 (130,000) deferred tax liability

The taxable income will be for

10,840,000

-   215,000 permanent difference

+    130,000   temporary difference

10,755,000

Then, we apply the 21% corporate tax rate which is the income tax rate for 2019

10,755,000 x 21% = 2,258,55‬0 income tax payable

The accounting income tax expense will be calculate based on the temporary difference only:

10,840,000 + 130,000 = 10,970,000 x 21% = 2,303,700‬ income tax expense