Watson Corporation prepared the following reconciliation for its first year of o

Question

Watson Corporation prepared the following reconciliation for its first year of operations:
Pretax Financial income for 2017 = $1,400,000
Tax exempt interest (permanent difference) = - $100,000
Originating temporary difference = - $300,000
Taxable income = $1,000,000
Temporary difference will reverse evenly over the next two years at an enacted tax rate of 21%. The enacted tax rate for 2017 is 35%.
a) What amount should be reported in its 2017 income statement as the current portion of its provision for income taxes?
b) What amount should be shown on the balance sheet for Watson's deferred taxes?

Explanation / Answer

(a) Current portion of provision for income tax = Taxable income * tax rate for the year 2017 = 1,000,000*35% = $350,000

(b) Deferred portion of income tax = Originating temporary difference * enacted tax rate for temporary difference = $300,000 * 21% = $63,000 debit

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.