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You have been assigned to compute the income tax provision for Moto memories Inc. (MM) as of December 31, 2009. The company's federal income tax rate...

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Tax.docx

You have been assigned to compute the income tax provision for Moto memories Inc. (MM) as of December
31, 2009. The company’s federal income tax rate is 34 percent. The company’s income statement for 2009 is
provided below.
Moto Memories Inc.
Statement of Operations
At December 31 2009
Net sales
Cost of sales
Gross profit $50,000,000
28,000,000
$22,000,000 Compensation
Selling expenses
Depreciation and amortization
Other expenses
Total operating expenses
Income from operations
Interest and other income
Income before income taxes $ 2,000,000
1,500,000
4,000,000
500,000
$ 8,000,000
$14,000,000
1,000,000
$15,000,000 You have identified the following permanent differences:
Interest income from municipal bonds:
$ 50,000
Nondeductible meals and entertainment expenses:
$ 20,000
Domestic manufacturing (§199) deduction:
$250,000
Nondeductible:
$ 5,000
MM prepared the following schedule of temporary differences from the beginning of the year to the end of
the year: Moto
Memories
Inc:
Temporary
Differences
Scheduling
Template
Taxable
Temporary
Differences
Noncurrent
Accumulated
depreciation BOY
Cumulative
T/D Beginning
Deferred
Taxes (@
34%) Current
Year
Change -8,000,000 -2,720,000 -1,000,000 Deductible BOY Beginning Current EOY
Cumulative
T/D
-9,000,000
EOY Ending Deferred
Taxes (@ 34%)
-3,060,000
Ending Deferred Temporary
Differences
Current
Allowance for
bad debts
Reserve for
warranties
Inventory Section
263A adjustment
Total Current
Noncurrent
Deferred
Compensation
Accrued pension
liabilities
Total noncurrent
Total Cumulative
T/D B. C. Year
Change Cumulative
T/D Taxes (@ 34%) 200,000 68,000 50,000 250,000 85,000 100,000 34,000 20000 120,000 40,800 240,000
540,000 81,600
183,600 60000
130000 300,000
670,000 102,000
227,800 50,000 17,000 10,000 60,000 20,400 3,000,000
3,050,000
3,590,000 1,020,000
1,037,000
1,220,600 250,000
260,000
390,000 3,250,000
3,310,000
3,980,000 1,105,000
1,125,400
1,353,200 Required: A. Deferred
Taxes (@
34%) Compute
MM's
current
income tax
expense or
benefit for
2009.
Compute
MM's
deferred
income tax
expense or
benefit for
2009.
Prepare a
reconciliatio
n of MM's
total income
tax provision
with its
hypothetical
income tax
expense in
both dollars
and rates.

This question was asked on Jun 24, 2010.

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