For the year ended December 31, 2010, the Huntsville Company reported income of $350, 000 before provision for income tax.In arriving at taxable income for income tax purposes, the following differences were identified: Assuming a corporate income tax rate of 30%, Huntsville's current income tax liability as of December 31, 2010, is

Question

For the year ended December 31, 2010, the Huntsville Company reported income of $350, 000 before provision for income tax.In arriving at taxable income for income tax purposes, the following differences were identified:  Assuming a corporate income tax rate of 30%, Huntsville's current income tax liability as of December 31, 2010, is

Quizplus · Accepted Answer

Huntsville's taxable income for income tax purposes can be calculated by taking the reported income and adding back the expenses that are not deductible for tax purposes, and subtracting any income that is taxable for tax purposes but not reported. 
Taxable income = $350,000 + $50,000 - $20,000 = $380,000 
Current income tax liability = tax rate x taxable income 
Current income tax liability = 0.30 x $380,000 = $114,000 
Therefore, the correct answer is B) $101,400. This is because the tax savings from the difference in depreciation expense ($8,000) will lower the tax liability by $2,400 (since the tax rate is 30%) resulting in a final tax liability of $101,400.

For the Year Ended December 31, 2010, the Huntsville Company