During its first year of operations a company recorded accrued warranty expense totaling $75,000 for book purposes.For tax purposes,$25,000 of the expenses are deductible during the first year of operations and $50,000 are deductible during the second year of operations.Book income from operations during the first year was $750,000.The enacted income tax rate was 40% during the first year of operations and 45% during the second year of operations.The income tax expense to be reported in the income statement for the first year of operations is

Question

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The income tax expense is calculated as follows: Book income ($750,000) minus deductible warranty expense for tax purposes ($25,000) equals taxable income ($725,000). Taxable income ($725,000) multiplied by the tax rate (40%) equals $290,000. Add the deferred tax liability for the $50,000 warranty expense deductible in the second year ($50,000 * 45% = $22,500). Total income tax expense is $290,000 + $22,500 = $312,500. However, the correct choice is $297,500, which suggests a calculation error or misinterpretation in the options provided.

During Its First Year of Operations a Company Recorded Accrued