Phyllis, Inc., earns book net income before tax of $600,000.Phyllis puts into service a depreciable asset this year, and first year tax depreciation exceeds book depreciation by $120,000.Phyllis has recorded no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 21%, what is Phyllis's total income tax expense reported on its GAAP financial statements?

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Quizplus · Accepted Answer

Since there are no other temporary or permanent book-tax differences, the only income tax expense is due to the difference in tax and book depreciation. The difference is $120,000, which is multiplied by the tax rate of 21% to get $25,200. This amount is added to the income tax expense due to book net income before tax of $600,000 multiplied by the tax rate of 21%, which is $126,000. Therefore, the total income tax expense reported on Phyllis, Inc.'s GAAP financial statements is $126,000 + $25,200 = $151,200.