Question

Exercise 17-27 (0.6) Prance, Inc., ears pretax book net income of $800,000 in 2018. Prance acquires a depreciable asset that year, and first-year tax depreciation exceeds book depreciation by $80,000. Prance reported no other temporary or permanent book-tax differences. The relevant U.S. Federal corporate income tax rate is 21% and Prance earns an after-tax rate of return on capital of 8%. Compute the following for Prance, Inc. a. Current income tax expense b. Deferred income tax expense Total income tax expense

Answer 1

solution o I The book - tax basis difference in the depreciable asset is $80000. The deferred tax liabili ty, of (8001 X21%) $16800 is this basis difference multiplied by the Corporate tax rate. (b) Books Tax Book income 80000 800ood Taxs Books depreciation (80000) Income after depreciation 800000 720000 21%. 210 Income tax expense 1680D 151200 Total taze expense. cerorent tare expenset Deferred tax expense = 151200 + 16800 = 168000