Use the following information for questions 76-78.
At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a deferred tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income:
-What is Elephant, Inc.'s taxable income for 2015?

Question

Use the following information for questions 76-78.
At the beginning of 2015; Elephant, Inc. had a deferred tax asset of $10,000 and a deferred tax liability of $15,000. Pre-tax accounting income for 2015 was $750,000 and the enacted tax rate is 40%. The following items are included in Elephant's pre-tax income: 
-What is Elephant, Inc.'s taxable income for 2015?

Quizplus · Accepted Answer

To calculate taxable income, we need to first adjust pre-tax accounting income for items that are not taxable (exempt income) and for items that are not included in pre-tax accounting income but are taxable (taxable income). In this case, there is no information provided about any exempt income, but we are given the following taxable income items:

- Depreciation: $40,000
- Tax-exempt interest income: $20,000

To calculate taxable income, we subtract the sum of these items from pre-tax accounting income:

$750,000 - $40,000 - $20,000 = $690,000

Next, we apply the enacted tax rate of 40% to taxable income:

$690,000 x 0.40 = $276,000

Finally, we adjust for the existing deferred tax assets and liabilities:

- Deferred tax asset: $10,000
- Deferred tax liability: $15,000

Since the deferred tax liability is greater than the deferred tax asset, we subtract the difference from the tax expense:

$276,000 - ($15,000 - $10,000) = $271,000

Therefore, Elephant, Inc.'s taxable income for 2015 is $690,000 and their tax expense is $271,000.

Use the Following Information for Questions 76-78