At December 31, 2015, Grichuk Inc. had the following deferred tax balances:
Deferred tax liability – noncurrent $100,000
Deferred tax asset – noncurrent 80,000
Valuation allowance 20,000
These deferred tax balances relate to two items. First, Grichuk has recorded excess tax deductions related to its plant assets. At December 313, 2015, plant assets had a book value of $1,000,000 and a tax basis of $500,000. Second, Grichuk had a NOL carryforward in the amount of $400,000 at December 31, 2015. Grichuk determined the appropriate tax rate for recording deferred taxes at December 31, 2015 was 20%.
At December 31, 2016, we have the following information related to Grichuk’s year-end tax accrual:
Income before income tax on the income statement equals $600,000
Tax basis of plant assets equals $620,000
Book value of plant assets equals $1,300,000
The company began a premium plan on certain products it sells. The estimated liability for premiums has a $40,000 balance at 12/31/16.
Grichuk purchased 65% of the common stock of another entity during 2016 giving them control of that entity. The acquisition was appropriately accounted for as a business combination with an acquisition date of January 3. Included in the assets acquired, is the tradename of the acquired company. This tradename was valued at $3 million in accounting for the business combination. The tradename can be renewed indefinitely and Grichuk’s plans are to renew for the foreseeable future.
Grichuk purchased bonds issued by the state of Iowa as a long-term investment in 2016. Grichuk received $30,000 of interest on these bonds in 2016.
Because of increases in company profitability this year, Grichuk now projects that it is more likely than not that they will realize all benefits associated with any deferred tax assets the company records.
The company has determined that 25% is the appropriate tax rate for 2016 and all foreseeable future periods.
Grichuk has elected early application of the provisions of ASU 2015-17.
Required: Determine the following amounts:
e) The total tax liability from the 2016 tax return.