Relix, Inc., is a domestic corporation with the following temporary timing diffe
ID: 2338861 • Letter: R
Question
Relix, Inc., is a domestic corporation with the following temporary timing differences for the current year. The building depreciation for tax purposes exceeds book depreciation by $13,000. The furniture and fixtures depreciation for tax purposes exceeds book depreciation by $3,800. The accrued litigation expenses in the amount of $16,000 are deductible for book purposes but not yet deductible for tax. The book-tax basis differences for the deferred assets and liabilities are listed below.
Beginning of year Current-year diff-e End of year
($16,380)
In addition to the temporary differences above, Relix reported two permanent differences between book and taxable income. It earned $2,375 in tax-exempt municipal bond interest, and it incurred $780 in nondeductible business meals expense. Relix's book income before tax is $4,800. Assume a 21% Federal corporate tax rate and no valuation allowance.
Compute Relix's total provision for income tax reported in its financial statements, and determine its book net income after tax.
If required, round your answers to the nearest dollar.
Gross deferred tax asset $7,140 $3,360 $10,500 Gross deferred tax liability ($12,852) ($3,528)($16,380)
Explanation / Answer
Solution:
Computation of Provision for income tax expense Particulars Amount Pre tax financial income $4,800 Add: Non deductible business meal $780 Less: Tax exempt interest -$2,375 Less: Book tax difference in depreciation of building and Furniture & fixtures -$16,800 Add: Accured litigation expenses $16,000 Taxable Income $2,405 Provision for income tax Expense: Current Tax (21% of $2,405) $505 Deferred tax liability $3,528 Deferred tax asset -$3,360 Total Provision for income tax expense $673