Davis Company began manufacturing operations on January 2, 2015. During 2015 Davis earned pre-tax book income of $85,000 and had taxable income of $75,000. Davis had a temporary difference relating to a prepaid asset that will be expensed as follows for book purposes:
$$\begin{array} { l l }
2016 & \$ 7,500 \
2017 & \$ 2,500
\end{array}$$
-Income tax expense for 2015 is

Question

Davis Company began manufacturing operations on January 2, 2015. During 2015 Davis earned pre-tax book income of $85,000 and had taxable income of $75,000. Davis had a temporary difference relating to a prepaid asset that will be expensed as follows for book purposes:
$$\begin{array} { l l } 
2016 & \$ 7,500 \
2017 & \$ 2,500
\end{array}$$
-Income tax expense for 2015 is

Quizplus · Accepted Answer

The difference between book income ($85,000) and taxable income ($75,000) is $10,000, which is a temporary difference due to the prepaid asset. This difference will reverse in the future years (2016 and 2017) as the asset is expensed for book purposes. Assuming a tax rate of 30%, the deferred tax liability created by this temporary difference is $3,000 ($10,000 * 30%). The current tax expense is based on the taxable income, so it's $75,000 * 30% = $22,500. The total income tax expense for 2015 is the sum of the current tax expense and the deferred tax liability, which is $22,500 + $3,000 = $25,500. However, since this specific answer is not provided, it appears there might have been a mistake in the calculation or in the interpretation of the options. Given the options provided, the closest correct approach to calculating the income tax expense was intended, but none of the options exactly match the correct calculation based on the information given. Therefore, the response based on the provided options and typical accounting principles would aim for an explanation, but please note the discrepancy.

Davis Company Began Manufacturing Operations on January 2, 2015 2016$7,5002017$2,500\begin{array} { l l } 2016 & \$ 7,500 \\2017 & \$ 2,500\end{array}20162017​$7,500$2,500​

Davis Company Began Manufacturing Operations on January 2, 2015 $\begin{array} { l l } 2016 & \$ 7,500 \\2017 & \$ 2,500\end{array}$