Question

Burcham Corporation reported pretax book income of $425,000. Tax depreciation exceeded book depreciation by $410,000. In addition, the company received $165,000 of tax-exempt municipal bond interest. The company’s prior-year tax return showed taxable income of $103,000. Compute the company’s book equivalent of taxable income. Use this number to compute the company’s total income tax provision or benefit. assume tax rate is 21%

Answer 1

ANSWER

Pre-tax book income	$425,000
Excess tax depreciation	$-410,000
Tax exempt interest income	$-165,000
Net operating loss	$-150,000
NOL carryback to prior year	$103,000
*34%	21%
Current income tax benefit	$21,630

The remaining $47,000NOL carryover will be recorded as a deferred tax asset (benefit) of $9,870.

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