North,Inc. ,earns book net income before tax of $500,000 in 2010.In computing its book income,North deducts $50,000 more in warranty expense for book purposes than allowed for tax purposes.North has no other temporary or permanent differences.Assuming the U.S.tax rate is 35% and no valuation allowance is required,what is North's current income tax expense reported on its financial statements for 2010?

Question

Quizplus · Accepted Answer

The difference between book warranty expense and tax warranty expense creates a temporary difference, which will result in a future taxable amount when the warranty expense is recognized for tax purposes.

To calculate the current income tax expense, we need to determine the taxable income:

Taxable income = Book net income before tax + Temporary difference
Taxable income = $500,000 + $50,000 = $550,000

Current income tax expense = Taxable income x Tax rate
Current income tax expense = $550,000 x 35% = $192,500

Therefore, the answer is B, $192,500.

North,Inc ,Earns Book Net Income Before Tax of $500,000 in 2010.In