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 current income tax expense reported on its GAAP financial statements for 2014?

Question

Quizplus · Accepted Answer

First, we need to calculate the taxable income for 2014 by adjusting the book income with the tax depreciation:
Taxable income = Book income - Tax depreciation adjustment 
Taxable income = $500,000 - $20,000 = $480,000

Then, we can calculate the income tax expense as:
Income tax expense = Current tax liability + Change in deferred tax liability 
Income tax expense = (Taxable income x Tax rate) + (Ending deferred tax liability - Beginning deferred tax liability) 
Income tax expense = ($480,000 x 35%) + ($0 - $17,500) 
Income tax expense = $168,000 - $17,500 = $150,500

Therefore, the best choice is D) $182,000, which is the closest option to $150,500.

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