Question

What is the rent received in advance?

Metge Corporation's worksheet for calculating taxable income for 2017 follows: (in thousands) Pre-tax income 2017 $1,000 Permanent differences Goodwill impairment Interest on municipal bonds Temporary differences Depreciation Warranty costs Rent received in advance 400 (200) (800) 400 600 $1,400 Taxable income The enacted tax rate for 2017 is 35%, but it is scheduled to increase to 40% in 2018 and subsequent years. All temporary differences are originating differences. Metge had no deferred tax assets or deferred tax liabilities at December 31, 2016. Required: 1. Determine Metge's 2017 taxes due. 2. What is the change in deferred tax assets (liabilities) for 2017? 3. Determine tax expense for 2017. 4. Provide a schedule that reconciles Metge's statutory and effective tax rates (in both percentages and dollar amounts). Complete this question by entering your answers in the tabs below. Complete this question by entering your answers in the tabs below. Req 4 Reqs 1 to 3 Provide a schedule that reconciles Metge's statutory and effective tax rates (in both percentages and dollar amounts) (Negative amounts should be indicated by a minus sign. Enter your answers in thousands of dollars.) Percentage of Pre-Tax Income Amount 35 % 350 Expected tax expense at statutory rate Effect of permanent differences Goodwill impairment 140 14 (7) Interest on municipal bonds (70) Effect of higher tax rates on temporary differences Depreciation 40 (2) Warranty costs (20) Rent received in advance 44% Effective tax rate 440 Reqs 1 to 3 Req 4

Answer 1

Tax Dues = $1400 x 35% = $490

Net Deferred Tax Asset = ($400 + $600 - $800) x 40% = $80
Change in Deferred Tax Asset = $80 - 0 = $80

Tax expense = $490 - $80 = $410

Expected tax expense at statutory rate	$                 350.00	35.00%
Effect of permanent differences
Goodwill Impairement	$                 140.00	14.00%
Interest on municipal bonds	$                 (70.00)	-7.00%
Effect of higher tax rates on temporary differences	$                 (10.00)	-1.00%
Depreciation	$               (320.00)	-32.00%
Warranty Cost	$                 160.00	16.00%
Rent Received In advance	$                 240.00	24.00%
Effective tax rate	$                 490.00	49.00%