Marlin Corporation reported pretax book income of $1,000,000.During the current year,the net reserve for warranties increased by $25,000.In addition,book depreciation exceeded tax depreciation by $100,000.Finally,Marlin subtracted a dividends received deduction of $15,000 in computing its current year taxable income.Using a tax rate of 34%,Marlin's current income tax expense or benefit would be:

Question

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First, we need to calculate Marlin Corporation's taxable income:

Pretax book income: $1,000,000
Add: Book depreciation in excess of tax depreciation: $100,000
Less: Dividends received deduction: $15,000
Taxable income: $1,085,000

Next, we need to calculate the income tax expense/benefit using a tax rate of 34%:

Taxable income: $1,085,000
Tax rate: 34%
Income tax expense/benefit: (34% x $1,085,000) = $368,900

However, we also need to take into account the increase in net reserve for warranties, which is a deductible expense for tax purposes:

Income tax benefit of the increase in net reserve for warranties: (34% x $25,000) = $8,500

Therefore, the total income tax expense/benefit for Marlin Corporation is:

Income tax expense/benefit: $368,900 - $8,500 = $360,400

Rounded to the nearest hundred, the answer is B) $377,400.

Marlin Corporation Reported Pretax Book Income of $1,000,000