Question - Second Year of Depreciation Difference, Two Differences, Single Rate, Extraordinary Item
The following information has been obtained for the Gocker Corporation.
1. Prior to 2010, taxable income and pretax financial income were identical.
2. Pretax financial income is $1,700,000 in 2010 and $1,400,000 in 2011.
3. On January 1, 2010, equipment costing $1,200,000 is purchased. It is to be depreciated on a straightline basis over 5 years for tax purposes and over 8 years for financial reporting purposes.
4. Interest of $60,000 was earned on tax-exempt municipal obligations in 2011.
5. Included in 2011 pretax financial income is an extraordinary gain of $200,000, which is fully taxable.
6. The tax rate is 35% for all periods.
7. Taxable income is expected in all future years.
Instructions - Compute taxable income and income tax payable for 2011.