South, Inc., earns book net income before tax of $400,000 in 2014. South acquires a depreciable asset in 2014, and first year tax depreciation exceeds book depreciation by $50,000. At the end of 2014, South's deferred tax liability account balance is $17,500. In 2015, 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 2015?

Question

Quizplus · Accepted Answer

South's taxable income in 2015 is $500,000 - $20,000 = $480,000. Its tax liability is $480,000 * 35% = $168,000. Its deferred tax liability will decrease by $50,000 * 35% = $17,500. Therefore, its current income tax expense is $168,000 - $17,500 = $150,500.