South,Inc.,earns book net income before tax of $400,000 in 2013.South acquires a depreciable asset in 2013,and first year tax depreciation exceeds book depreciation by $50,000.At the end of 2013,South's deferred tax liability account balance is $17,500.In 2014,South earns $500,000 book net income before tax,and its book depreciation exceeds tax depreciation by $20,000.South records no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 35%,what is South's total income tax expense reported on its GAAP financial statements for 2014?

Question

Quizplus · Accepted Answer

The total income tax expense is calculated as the current tax expense plus the change in deferred tax liability. The current tax expense for 2014 is 35% of $500,000, which is $175,000. The deferred tax liability decreases by $20,000 * 35% = $7,000, so the total income tax expense is $175,000 - $7,000 = $168,000. However, the correct choice is $175,000, as it represents the current tax expense without considering the deferred tax adjustment.

South,Inc,Earns Book Net Income Before Tax of $400,000 in 2013