Premium Essay

Imcome Federal Tax

In: Business and Management

Submitted By farwell
Words 1336
Pages 6
Part 1 Calculation

Taxable income=Pre-tax net income+Fines & Penalties+Allowance for bad debts-Tax-exempt income-Depreciation=652,000+6,000+15,000-3,000-4,500=665,500

Current tax expense=Taxable income*Tax rate=665,500*34%=226,270

Beginning of year balance:

Total DTA=Beginning-of-year warranty reserve*Tax rate=40,000*34%=13,600

Total DTL=Beginning-of-year depreciation*Tax rate=10,000*34%=3,400

Net total DTA/DTL=Total DTA-Total DTL=13,600-3,400=10,200

End of year balance:

Total DTA=End-of-year warranty reserve*Tax rate+End-of-year Allowance for bad debts*Tax rate=(Beginning-of-year warranty reserve+Current year warranty reserve difference)*Tax rate+(Beginning-of-year allowance for bad debts+Current year allowance for bad debts difference)*Tax rate=(40,000+0)*34%+(0+15,000)*34%=18,700

Total DTL=End-of-year depreciation*Tax rate=(Beginning-of-year depreciation+Current year depreciation difference)*Tax rate=(10,000+4,500)*34%=4,930

Net total DTA/DTL=Total DTA-Total DTL=18,700-4,930=13,770

Deferred income tax expense/(benefit):

Warranty reserve expense=End-of-year warranty reserve-Beginning-of-year warranty reserve=13,600-13,600=0

Allowance for bad debts expense=End-of-year Allowance for bad debts-Beginning-of-year Allowance for bad debts=5,100-0=5,100

Depreciation benefit=End-of-year depreciation-Beginning-of-year depreciation=4,930-3,400=1,530

Deferred income tax expense=Warranty reserve expense+Allowance for bad debts expense-Depreciation benefit=0+5,100-1,530=3,570

Total tax expense=Current tax expense-Deferred tax expense=226,270-3,570=222,700

Effective tax rate=Total tax expense/Pre-tax net income=222,700/652,000=34.16%

Rate reconciliation:

Effective tax rate=F/S income at statutory rate+Permanent differences*Tax rate/Pre-tax net income=34%+6,000*34%/652,000-3,000*34%/652,000=34%+0.31%-0.16%=34.16%


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