Qute, Inc., earns book net income before tax of $500,000. In computing its book income, Qute deducts $50,000 more in warranty expense for book purposes than is allowed for tax purposes. Qute records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 35% and no valuation allowance is required, what is Qute's total income tax expense reported on its GAAP financial statements?

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Quizplus · Accepted Answer

Qute's book net income before tax is $500,000. The $50,000 warranty expense difference is a temporary difference, so the taxable income is $550,000 ($500,000 + $50,000). The current tax expense is $550,000 * 35% = $192,500. The deferred tax benefit is $50,000 * 35% = $17,500. Total income tax expense is $192,500 - $17,500 = $175,000.

Qute, Inc, Earns Book Net Income Before Tax of $500,000