Abbot Corporation reported pretax book income of $500,000.During the current year,the reserve for bad debts increased by $5,000.In addition,tax depreciation exceeded book depreciation by $40,000.Finally,Abbot received $3,000 of tax-exempt life insurance proceeds from the death of one of its officers.Using a tax rate of 34%,Abbot's current income tax expense or benefit would be:

Question

Quizplus · Accepted Answer

To calculate the current income tax expense or benefit, we need to adjust the pretax book income for the changes in reserves and depreciation and add the tax-exempt income. 
Adjusted Pretax book income = Pretax book income + Increase in reserve for bad debts - Tax depreciation in excess of book depreciation + Tax-exempt income
= $500,000 + $5,000 - $40,000 + $3,000 
= $468,000

Current income tax expense or benefit = Adjusted Pretax book income x Tax rate
= $468,000 x 0.34 
= $157,080

Therefore, the correct answer is C) $157,080.

Abbot Corporation Reported Pretax Book Income of $500,000