Question

a. not 620,000, b. not 130,200, c. is 126,000

Problem 3-10 (LO. 2)

Cortez, Inc., reports $600,000 of pretax book net income in 2019. Cortez’s book depreciation exceeds tax depreciation that year by $20,000. The corporation reports no other temporary or permanent book-tax differences. Cortez’s pertinent U.S. tax rate is 21%, and Cortez earns an after-tax rate of return on capital of 8%.

For 2019, compute the following for Cortez, Inc.

a. Current income tax expense $ b. Deferred income tax expense $ c. Total income tax expense $

a. not 620,000, b. not 130,200, c. is 126,000

Answer 1

Solution:

Taxable income = Pretax income + book depreciation exceeds tax depreciation = $600,000 + $20,000 = $620,000

a. Current income tax expense = $620,000 * 21% = $130,200

b. Deferred income tax expense (benefit) = -$20,000 * 21% = ($4,200)

c. Total income tax expense = $130,200 - $4,200 = $126,000