South, Inc., earns book net income before tax of $400,000 in year 1. It acquires a depreciable asset in year 1, and its first-year tax depreciation exceeds book depreciation by $50,000. At the end of year 1, South's deferred tax liability account balance is $10,500. In year 2, South earns $500,000 book net income before tax, and its book depreciation exceeds tax depreciation by $20,000. South records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21%, what is South's total provision for income tax expense reported on its GAAP financial statements for year 2?
A) $4,200
B) $94,500
C) $105,000
D) $109,200

Question

Quizplus · Accepted Answer

The total provision for income tax expense is calculated as the current tax expense plus the change in deferred tax liability. The current tax expense is 21% of the taxable income, which is $500,000 - $20,000 = $480,000, resulting in $100,800. The deferred tax liability decreases by $20,000 * 21% = $4,200. Therefore, the total provision is $100,800 + $4,200 = $105,000.