Williams Company had depreciation in 2016 for tax purposes of $30,000 but for bo

Question

Williams Company had depreciation in 2016 for tax purposes of $30,000 but for book purposes only $18,000. Also in 2016, Williams recognized a loss from a contingency amounting to $40,000 which the Internal Revenue Service does not allow until it actually occurs and did in 2017. Finally, Williams recognized $19,000 of interest income in its financial statements which the Internal Revenue Service will never regard as income.

Taxes paid in 2016 were $90,000 with a tax rate of 30%. Determine:

A.) The financial accounting income for 2016


B.) The tax expense for 2016.

Explanation / Answer

Answer A. Taxable Income - $90,000 / 30%    300,000.00 Add: Deprciation - Tax Purposes      30,000.00 Add: Interest Income      19,000.00 Less: Depreciation - Book Purposes    (18,000.00) Less: Loss From Contingency    (40,000.00) Financial Accounting Income    291,000.00 Answer b. Tax Expense - 2016 - $291,000 X 30%      87,300.00

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