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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 companys federal income tax rate is 34 percent. The companys 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.

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