B&B Inc.'s taxable income is computed as follows. B&B's tax rate is 34%. Which of the following statements is true?

Question

B&B Inc.'s taxable income is computed as follows.  B&B's tax rate is 34%. Which of the following statements is true?

Quizplus · Accepted Answer

From the information given in the question, we can calculate B&B's taxable income as follows:

Taxable income = Pretax financial income + Permanent differences - Temporary differences

= $1,265,000 + $340,000 - $209,286

= $1,395,714

B&B's tax rate is given as 34%, so its income tax liability would be:

Income tax liability = Taxable income × Tax rate

= $1,395,714 × 0.34

= $474,857

To calculate the deferred tax assets/liabilities, we need to consider the temporary and permanent differences separately.

The question does not provide information about the breakdown of temporary and permanent differences, but we know that the net effect of these differences is a $120,714 increase to B&B's deferred tax liabilities (as shown in the balance sheet).

Therefore, we can conclude that the temporary differences caused a $272,714 net increase in B&B's deferred tax liabilities, and the permanent differences caused a $152,184 net decrease in B&B's deferred tax assets.

Among the given options, only option D reflects this result.

B&B Inc'S Taxable Income Is Computed as Follows