ExpertHard1 markMultiple Choice
CPA · Question 43 · Area III: Select Transactions
A company reports Pretax Financial Income of $500,000. <br/>- Municipal bond interest income: $20,000<br/>- Depreciation (Tax > Book): $50,000<br/>- Warranty Expense (Book > Tax Paid): $10,000<br/><br/>The enacted tax rate is 25%. What is the Current Income Tax Payable?
A company reports Pretax Financial Income of $500,000. <br/>- Municipal bond interest income: $20,000<br/>- Depreciation (Tax > Book): $50,000<br/>- Warranty Expense (Book > Tax Paid): $10,000<br/><br/>The enacted tax rate is 25%. What is the Current Income Tax Payable?
Answer options:
A.
$125,000
B.
$110,000
C.
$115,000
D.
$107,500
How to approach this question
Start with Book Income. <br/>1. Permanent Differences: Subtract Muni Interest. <br/>2. Temporary Differences: Subtract Excess Tax Depr. Add Excess Book Warranty. <br/>3. Result = Taxable Income. Multiply by Rate.
Full Answer
B.$110,000✓ Correct
B
Pretax Financial Income: $500,000<br/>Less: Muni Interest (Permanent): ($20,000)<br/>Less: Excess Tax Depreciation (Temp): ($50,000)<br/>Add: Warranty Expense not deductible yet (Temp): $10,000<br/>Taxable Income: $440,000<br/>Current Tax Payable = $440,000 × 25% = $110,000.
Common mistakes
Adding Muni interest. Reversing the signs of temporary differences.
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