Van Dyke, Inc., hopes to report a total book tax expense of $150,000 in the current year. This amount consists of $200,000 in current tax expense and an $50,000 tax benefit related to the expected future use of an NOL by Van Dyke. If the auditors determine that a valuation allowance of $20,000 must be placed against Van Dyke's deferred tax assets, what is Van Dyke's total book tax expense?

Question

Quizplus · Accepted Answer

Van Dyke's total book tax expense would be the sum of current tax expense ($200,000) and the tax benefit related to the NOL ($50,000), minus the valuation allowance ($20,000): $200,000 + $50,000 - $20,000 = $230,000. However, since Van Dyke hopes to report a total book tax expense of $150,000, it means they will have to make a tax adjustment of -$80,000 to reduce their reported book tax expense from $230,000 to $150,000. Thus, the total book tax expense after the adjustment would be $170,000 ($230,000 - $80,000 adjustment). Therefore, the correct answer is B.