Current provision exercise
Facts
Walker Corporation has pre-tax book income of $2,105,000 for its year ended 12/31/20Y2. Walker operates entirely in one state with a 5% state income tax rate. The following information is available to estimate its current permanent and temporary book-tax differences.
- Meals and entertainment expenses for book purposes totaled $36,000.
- Book depreciation totaled $467,500. MACRS tax depreciation is $512,000.
- Tax amortization of organization costs totaled $5,000.
- Nondeductible accrued expense liabilities per books at 12/31/20Y2 total $43,000. (Deductible in future tax years.) The 12/31/20Y1 accrued expense liability of $34,000 was paid and is deductible for tax purposes during 20Y2.
- During 20Y2, Walker engaged in activities qualifying for a tax credit of $68,000. Walker can use $32,000 of the credit to reduce 20Y2 current tax payable. The remaining credit of $36,000 must be carried forward to reduce future tax liabilities.
There are no uncertain tax positions affecting Walker's 20Y2 tax provision, and no prior year provision-to-return adjustments.
Required: Calculate Walker's current tax provision.
Deferred provision Types of temporary differences exercise
Required - For each of the scenarios described below, answer the following questions.
1. Does the situation result in a taxable temporary difference or a deductible temporary difference?
2. Does the temporary difference produce a deferred tax asset or a deferred tax liability?
3. From what specific balance sheet asset or liability account is the temporary difference calculated?
4. How is the tax basis of the balance sheet asset or liability account calculated and why does it differ from the book basis of that asset or liability account?
Scenario 1 - Rayco Corporation was incorporated and began business this year. For tax purposes, it capitalized organization costs which are amortizable over 15 years. For book purposes, the organization costs were expensed.
Scenario 2 - On 31 December, Weston Corporation received an advance payment of two years of rental income from a tenant in one of its commercial buildings. For book purposes, the payment was recorded as unearned revenue and will be reported as income when earned over the next two years.