B what booktax difference associated with its

b. What book–tax difference associated with its goodwill should RC report in
year 2? Is it favorable or unfavorable? Is it permanent or temporary?

Req A
What book-tax difference associated with its goodwill should RC report in year 1? Is it favorable or
unfavorable? Is it permanent or temporary? (Do not round intermediate computations.)
Book-tax difference $28,500
Is it favorable or unfavorable? Favorable
Is it permanent or temporary? Temporary
Book tax difference = (1710,000 / 180 month ) X 3 month = 28500

Req B
What book-tax difference associated with its goodwill should RC report in year 2? Is it favorable or
unfavorable? Is it permanent or temporary? (Do not round intermediate computations.)
Book-tax difference $556,000
Is it favorable or unfavorable? Unfavorable
Is it permanent or temporary? Temporary
Book tax difference = (1710,000 / 180 month ) X 12 month = 114000
= 670,000 - 114,000 = 556000

Explanation
a.
For tax purposes, RC amortizes the $1,710,000 using the straight-line method
over 15 years (180 months). Consequently, in year 1, RC will amortize and deduct
$28,500 of the goodwill ($1,710,000/180 months x 3 months = $28,500) for tax purposes.
However, for book purposes, RC does not expense any of the goodwill because there is no
impairment. Consequently, in year 1, RC will report a favorable $28,500 temporary
difference associated with the goodwill.
b. In year 2, RC amortizes $114,000 of the goodwill for tax purposes ($1,710,000/180 x 12
months = $114,000). For book purposes RC writes off (deducts) $670,000 in goodwill.
Consequently, it reports a $556,000 unfavorable temporary book-tax difference in year 2.
19- Riverbend Inc. received a $240,000 dividend from stock it held in Hobble Corporation. Riverbend's taxable
income is $2,710,000 before deducting the dividends received deduction (DRD), a $50,500 NOL carryover, and
a $153,000 charitable contribution. Use Exhibit 16-6. (Round your tax rates to 1 decimal
place. Leave no answer blank. Enter zero if applicable.)
a. What is Riverbend’s deductible DRD assuming it owns 10 percent of Hobble
Corporation?
DRD = 240,000 X 50% = 120,000
Explanation
a.
Because Riverbend owns less than 20 percent of Hobble, its DRD percentage is 50%. Its full DRD is $120,000
(0.5 × $240,000). Riverbend's modified taxable income for the taxable income limitation is $2,557,000
($2,710,000 minus $153,000 charitable contribution). Thus, the taxable income limit is $1,278,500 ($2,557,000
× 50%). Because the full $120,000 DRD is less than the taxable income limit, Riverbend may deduct the entire
$120,000 DRD.
20- Grand Corporation reported pretax book income of $732,500. Tax depreciation
exceeded book depreciation by $630,000. In addition, the company received $232,000 of
tax-exempt municipal bond interest. The company’s prior-year tax return showed taxable
income of $49,000. Compute the company's current or deferred income tax expense or
benefit.
Deferred income tax
benefits
$27,195
Pretax income in books
$ 73250
0
Tax depreciation exceeded in
book
$
(630000)

Tax-exempt municipal bond
interest
$
(232000)
Net Operating Loss
$
(129500)
So, NOL credit back of prior period = $ 129,500
Deferred income tax benefit = $129500 X 21% = $ 27195
Explanation
Pretax book income $ 732,500
Excess tax depreciation (630,000)
Tax-exempt interest income (232,000)
Net operating loss $(129,500)
The NOL can only be carried forward to offset income in a future year. The entire $129,500 NOL carryover will
be recorded as a deferred tax asset (benefit) of $27,195 ($129,500 x 21%). Grand Corporation will have to