Chapter 17 Accounting for Income Taxes -13

Chapter 17 Accounting for Income Taxes -13 - provision...

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36. Abbot Corporation reported pretax book income of $500,000 in 2011. During the current year, the reserve for bad debts increased by $5,000. In addition, tax depreciation exceeded book depreciation by $40,000. Finally, the Company received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers. Assuming a tax rate of 34%, the Corporation's deferred income tax expense or benefit for 2011 would be: A. $11,900 net deferred tax expense B. $11,900 net deferred tax benefit C. $15,300 net deferred tax benefit D. $15,300 net deferred tax expense The increase in the reserve for bad debts is a deductible temporary difference of $5,000. The excess of tax depreciation over book depreciation is a taxable temporary difference of $40,000. The result is a net taxable temporary difference of $35,000, which results in a net deferred tax expense of $11,900 ($35,000 × 34%). AACSB: Reflective thinking AICPA: BB Critical thinking Bloom's: Application Learning Objective: 17-02 Calculate the current and deferred income tax expense or benefit components of a company's income tax
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Unformatted text preview: provision. Level of Difficulty: Medium 37. Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as: A. Deductible temporary difference B. Taxable temporary difference C. Favorable permanent difference D. Unfavorable permanent difference The future tax deduction created by the write-off of bad debts will create a future tax benefit and will be recorded on the balance sheet as a deferred tax asset. AACSB: Reflective thinking AICPA: BB Critical thinking Bloom's: Knowledge Learning Objective: 17-02 Calculate the current and deferred income tax expense or benefit components of a company's income tax provision. Level of Difficulty: Easy...
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