The Harry Company reported for pre-tax income of $500,000 for Year 2.Its pre-tax income included $40,000 of meals and entertainment expenses and CCA in excess of depreciation of $70,000.Harry's tax rate for Year 2 was 20%.The tax rate in effect for Year 3 and beyond was 25%.The Year 3 tax rate was enacted during Year 2.At the start of Year 2, Harry's capital assets had a book value of $100,000 and a UCC of $200,000. Based on the information provided above, Harry's total reported income tax expense for Year 2 would have been:

Question

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The correct answer is A.The total reported income tax expense for Year 2 would have been $102,500. This is calculated as follows:Pre-tax income: $500,000Add: Meals and entertainment expenses: $40,000Add: CCA in excess of depreciation: $70,000Taxable income: $610,000Income tax expense: $610,000 x 20% = $102,500

The Harry Company Reported for Pre-Tax Income of $500,000 for Year