Max Co. shows income before tax amounting to $580,000 on its income statement (prepared under GAAP) for the year ending December 31, 2018. You are assigned to prepare the income tax expense/provision journal entry. You learn the following additional information:
- Max recognized $10,000 of fines that are not tax deductible. (Just to be clear, the fines are including in calculating $580,000 income before tax.)
- Max's depreciation expense under GAAP was $80,000 (already reflected in the $580,000). Depreciation on the tax return will total $120,000.
- Max sold $50,000 of magazine subscriptions at the end of the year. Those subscriptions will not be fulfilled (magazines delivered to subscribers) until next year.
- Max earned (and recorded) $15,000 of tax-exempt municipal bonds during the year.
- Max's tax rate is 21% (only federal, Max is not subject to any other income taxes).
- Your assignment is to calculate Max's income tax expense for the year, income taxes payable, deferred tax assets and liabilities (separating current and noncurrent assets and liabilities). prepare a journal entry, or write out the answers, so long as I can determine the amounts for each of those items (if any) and how you calculated them.
- What is Max's effective tax rate? (As it will be disclosed in Max's annual report.) Be sure to show how you calculated the effective tax rate.
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