The Main Company reported financial income before taxes of $4,000,000. Consider

Question

The Main Company reported financial income before taxes of $4,000,000. Consider the following additional information: Depreciation Method used for financial accounting = straightline (total amount for current year was $150,000. Method used for IRS was resulted in $200,000 deduction. Municipal bond interest earned during the current year was $80,000. Income tax carryforward benefit from previous year NOL equals $50,000 Warranty expense for financial statement was $120,000 of which 1/3 was actually paid during the current year. The company was assessed a late filing penalty for filing last year’s taxes late. The amount was $10,000. Make the entry for the current year’s taxes. You MUST show all calculations. Make only one compound entry and it must be in good form.

Explanation / Answer

Income before taxes = 4000000

Add Depreciation disallowed = (200000-150000) = 50000

Add Warranty expenses not paid = 120000/3*2 = 80000

Add Penalty Disallowed = 10000

Less Municipal Bond interest (not taxable) = 80000

Less carry forward deduction = 50000

Taxable income = 4010000

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