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1 Van Dyke, Inc., hopes to report a total book-tax expense of $150,000 in the current...

1 Van Dyke, Inc., hopes to report a total book-tax expense of $150,000 in the current year. This amount consists of $200,000 in current tax expense and a $50,000 tax benefit related to the expected future use of an NOL by Van Dyke. If the auditors determine that a valuation allowance of $20,000 must be placed against Van Dyke's deferred tax assets, what is Van Dyke's total book-tax expense?

a.$250,000

b.$200,000

c.$170,000

d.$150,000

2 Gravel, Inc., earns book net income before tax of $600,000. Gravel puts into service a depreciable asset this year, and its first-year tax depreciation exceeds book depreciation by $120,000. Gravel has recorded no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21%, what is Gravel's current income tax expense reported on its GAAP financial statements?

a.$126,000

b.$151,200

c.$100,800

d.$25,200

3 Morrisson, Inc., earns book net income before tax of $500,000. In computing its book income, Morrisson deducts $50,000 more in warranty expense for book purposes than is allowed for tax purposes. Morrisson records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21% and no valuation allowance is required, what is Morrisson's current income tax expense reported on its GAAP financial statements?

a.$94,500

b.$10,500

c.$115,500

d.$105,000

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Answer #1
  1. The answer is $150,000 + deferred tax asset of $20,000 and therefore the answer is $170,000.
  2. The answer is,
    1. Net income is $600,000 - $120,000 = $480,000.
    2. Tax expense would be $480,000 * 21% = $100,800.
  3. Income for the purpose of tax computation is $500,000 + $50,000 = $550,000,
    1. Therefore the answer is $550,000 * 34% = $115,500.
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