Accounting for Income Taxes: Maria Company was formed on January 1, Year 1. In i
ID: 2497786 • Letter: A
Question
Accounting for Income Taxes:
Maria Company was formed on January 1, Year 1. In its first twelve months ending December 31, Year 1, the firm’s financial income [FA] was $90,000 while tax accounting income [TA] was $60,000. 70% of this difference was due to temporary differences. [Depreciation Expense for TA was more than for FA by $21,000.] The remainder of the difference was due to muni bond interest revenue [permanent difference]. The firm’s current and estimated future tax rates were both 30%.
Required: Determine Maria’s Current Tax Expense [CTE] for these twelve months based on the information given.
$___________
Required: Determine Maria’s Deferred Tax Expense [DTE] for the twelve months ended December 31, Year 1, based on the information given above. If the DTE is a credit balance put your answer in parentheses or otherwise indicate you intend your answer as a credit. $___________
Explanation / Answer
Deferred tax is always calculated on timing difference which are temporary innature, for this calculation we ignore permanent timing differences. As depreciation as per tax exceeds depreciation as per finance it denotes our deferred tax liability.
Financial Income 90000 Tax Accounting Income 60000 Timing Difference 30000 Temporary Difference 21000 Dep(TA) exceeds Dep (FA) Permanent Difference 9000