chapter19excel - CORPORATE TAX RATE 35 BOOK GAAP Sales...

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CORPORATE TAX RATE: 35% BOOK/ GAAP TAX/ IRC DIFFERENCE Sales 100,000 100,000 - COS 75,000 75,000 - SG&A 8,000 8,000 - Depreciation 10,000 12,000 (2,000) INCOME BEFORE INCOME TAX 7,000 5,000 2,000 Income tax rate 35% 35% 35% Income tax provision have to solve 1,750 700 NET INCOME need to know tax provision N/A N/A The depreciation difference will "reverse" over time, but we need to do something about it right now! Since this is a balance sheet approach, we first find the balance sheet amounts then solve for the tax expense to record. We are getting more of a deduction for dep. than we expense (this year) for GAAP. This creates a deferred tax liability because we will be recording more expense in the future. We compute the deferred tax asset as follows: Book/Tax difference 2,000 Effective rate 35% DEFERRED TAX ASSET 700 We owe Uncle Sam 1,750 ENTRY: Deferred tax liability 700 Income tax payable 1,750 Income tax provision 2,450 NOTE that the income tax expense of $2,450, which was a plug for us, works out to be 35% of the GAAP income before income tax!! For those math folks out there, this is because the income tax rate used for
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This note was uploaded on 08/06/2008 for the course ECON 136C taught by Professor Anderson during the Summer '08 term at UCSB.

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chapter19excel - CORPORATE TAX RATE 35 BOOK GAAP Sales...

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