Question:
Mozart Inc.'s taxable income for 2005 of $98,000 will be taxed at the 40% corporate tax rate. For tax purposes, its depreciation expense exceeded the depreciation used for financial reporting purposes by $27,000. Mozart has $45,000 of purchased goodwill on its books; during 2005 Mozart determined that the goodwill had suffered a $3,000 impairment of value for financial reporting purposes. None of the goodwill impairment is deductible for tax purposes. Mozart purchased a 3-year corporate liability insurance policy on July 1, 2005 for $36,000 cash. The entire premium was deducted for tax purposes in 2005.
Required:
1. Determine Mozart Inc.'s pre tax income for 2005.
2. Determine the change in Mozart Inc.'s deferred tax amounts for 2005.
3. Calculate tax expense for Mozart Inc. for 2005.