PaintCo Inc., a domestic corporation, owns 100% of BrushCo Ltd., an Irish corporation. Assume that the U.S. corporate tax rate is 35% and the Irish rate is 15%. PaintCo is permanently reinvesting BrushCo's earnings outside the United States under ASC 740-30 (APB 23). The corporations' book income, permanent and temporary book-tax differences, and current tax expense are reported as follows. There is no valuation allowance, and the effective tax rates do not change. Determine PaintCo's total tax expense reported on its GAAP financial statements, its current tax expense (benefit), and its deferred tax expense (benefit). $$\begin{array} { l r r }
& \text { PaintCo } & \text { BrushCo } \
\text { Book income before tax } & \$ 600,000 & \$ 400,000 \
\text { Permanent differences } & & \
\quad \text { Meals \& entertainment expense } & 40,000 & - 0 - \
\text { Municipal bond interest income } & ( 10,000 ) & - 0 - \
\text { Temporary differences } & & \
\text { Tax } \text { book depreciation } & ( 100,000 ) & - 0 - \
\text { Book } \text { tax bad debt expense } & 20,000 & - 0 -
\end{array}$$

Question

PaintCo Inc., a domestic corporation, owns 100% of BrushCo Ltd., an Irish corporation. Assume that the U.S. corporate tax rate is 35% and the Irish rate is 15%. PaintCo is permanently reinvesting BrushCo's earnings outside the United States under ASC 740-30 (APB 23). The corporations' book income, permanent and temporary book-tax differences, and current tax expense are reported as follows. There is no valuation allowance, and the effective tax rates do not change. Determine PaintCo's total tax expense reported on its GAAP financial statements, its current tax expense (benefit), and its deferred tax expense (benefit). $$\begin{array} { l r r } 
& \text { PaintCo } & \text { BrushCo } \
\text { Book income before tax } & \$ 600,000 & \$ 400,000 \
\text { Permanent differences } & & \
\quad \text { Meals \& entertainment expense } & 40,000 & - 0 - \
\text { Municipal bond interest income } & ( 10,000 ) & - 0 - \
\text { Temporary differences } & & \
\text { Tax } > \text { book depreciation } & ( 100,000 ) & - 0 - \
\text { Book } > \text { tax bad debt expense } & 20,000 & - 0 -
\end{array}$$

Quizplus · Accepted Answer

The Answer of PaintCo Inc., a domestic corporation, owns 100% of BrushCo Ltd., an Irish corporation. Assume that the U.S. corporate tax rate is 35% and the Irish rate is 15%. PaintCo is permanently reinvesting BrushCo's earnings outside the United States under ASC 740-30 (APB 23). The corporations' book income, permanent and temporary book-tax differences, and current tax expense are reported as follows. There is no valuation allowance, and the effective tax rates do not change. Determine PaintCo's total tax expense reported on its GAAP financial statements, its current tax expense (benefit), and its deferred tax expense (benefit). $$\begin{array} { l r r } 
& \text { PaintCo } & \text { BrushCo } \
\text { Book income before tax } & \$ 600,000 & \$ 400,000 \
\text { Permanent differences } & & \
\quad \text { Meals \& entertainment expense } & 40,000 & - 0 - \
\text { Municipal bond interest income } & ( 10,000 ) & - 0 - \
\text { Temporary differences } & & \
\text { Tax } > \text { book depreciation } & ( 100,000 ) & - 0 - \
\text { Book } > \text { tax bad debt expense } & 20,000 & - 0 -
\end{array}$$