South, Inc., earns book net income before tax of $400,000 in 2010. South acquires a depreciable asset in 2010, and first year tax depreciation exceeds book depreciation by $50,000. At the end of 2010, South's deferred tax liability account balance is $17,500. In 2011, South earns $500,000 book net income before tax, and its book depreciation exceeds tax depreciation by $20,000. South records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 35%, what is South's current income tax expense reported on its GAAP financial statements for 2011?

Question

Quizplus · Accepted Answer

The current income tax expense is calculated as the taxable income multiplied by the tax rate. In 2011, the taxable income is $500,000 (book income) + $20,000 (excess book depreciation over tax depreciation) = $520,000. The tax expense is $520,000 * 35% = $182,000.