Watson Corporation prepared the following reconciliation for its first year of operations: The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2015 is 28%. What amount should be reported in its 2015 income statement as the current portion of its provision for income taxes?

Question

Watson Corporation prepared the following reconciliation for its first year of operations:  The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax rate for 2015 is 28%. What amount should be reported in its 2015 income statement as the current portion of its provision for income taxes?

Quizplus · Accepted Answer

The current portion of the provision for income taxes is calculated as the total income tax expense multiplied by the difference between the current year's enacted tax rate and the future year's enacted tax rate, divided by the current year's enacted tax rate.

In this case, the total income tax expense is $980,000 ($700,000 + $280,000), the difference between the enacted tax rates is 12% (40% - 28%), and the current year's enacted tax rate is 28%.

Therefore, the current portion of the provision for income taxes is:

$980,000 x 12% / 28% = $392,000

Watson Corporation Prepared the Following Reconciliation for Its First Year