Morrisson, Inc., earns book net income before tax of $500,000. In computing its book income, Morrisson deducts $50,000 more in warranty expense for book purposes than is allowed for tax purposes. Morrisson 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 Morrisson's current income tax expense reported on its GAAP financial statements?
A)$192,500
B)$175,000
C)$157,500
D)$17,500

Question

Quizplus · Accepted Answer

Morrisson's taxable income is $500,000 - $50,000 = $450,000. Its current income tax expense is $450,000 * 35% = $157,500. However, for GAAP purposes, Morrisson deducts $50,000 more in warranty expense, resulting in a book net income before tax of $500,000 - $50,000 = $450,000. Therefore, Morrisson's current income tax expense reported on its GAAP financial statements is $450,000 * 35% = $157,500.