X has pre-tax book income of 2,105,000$ for its year ended 12/31/20Y2. X operate

Question

X has pre-tax book income of 2,105,000$ for its year ended 12/31/20Y2. X operates entirely in one state with a 5% income tax rate. The following information is available to estimate its current permanent and temporary book-tax difference:

Meals and entertainment expenses for book purposes totalled 36,000$.

Book depreciation totalized 467,500$. MACRS tax depreciation is 512,000$.

Tax amortization of organization costs totalled 5,000$.

Nondeductible accrued expense liabilities per books at 12/31/20Y2 total 43,000$. (Deductible in future tax years) The 12/31/20Y1 accrued expense liability of 34,000$ is paid and is deductible for tax purposes during 20Y2.

During 20Y2, X engaged in activities qualifying for a tax credit of 68,000$. X can use 32, 000$ of the credit to reduce 20Y2 current tax payable. The remaining credit of 36,000$ must be carried forward to reduce future tax liabilities

There are no uncertain tax positions affecting X’s 20Y2 tax provision, and no prior year provision to return adjustments.

Question:

Calculate X’s current tax provision.

Explanation / Answer

1. Pre tax book income= $2,105,000

2. Add= 36,000+467500+512000+5000+43000-34000= $1,029,500

Add 1+2= 2,105,000+1,029,500=3,134,500- Tax credit= 3,134,500-32000=3,102,500.

X's cuurnt tax provison= 3,102,500.

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