Marlin Corporation reported pretax book income of $1,007,000. During the current year, the net reserve for warranties increased by $26,400. In addition, book depreciation exceeded tax depreciation by $100,700. Finally, Marlin subtracted a dividends received deduction of $15,700 in computing its current-year taxable income. Marlin's current income tax expense or benefit would be:

Question

Quizplus · Accepted Answer

Taxable income is calculated by adjusting the pretax book income for differences between book and tax treatments. The increase in warranty reserve ($26,400) and the excess of book over tax depreciation ($100,700) decrease taxable income, while the dividends received deduction ($15,700) also decreases taxable income. Thus, taxable income is $1,007,000 - $26,400 - $100,700 - $15,700 = $864,200. Assuming a corporate tax rate of 21%, the tax expense is $864,200 * 21% = $181,482. The correct answer must account for these adjustments, leading to option B as the closest to this calculation. However, it appears there might be a misunderstanding in the calculation process or additional information not considered in the explanation provided.

Marlin Corporation Reported Pretax Book Income of $1,007,000