Question

Maine Corporation prepared the following:

          Pretax financial income for 2021              $          1,500,000

          Tax exempt interest                                               (140,000)

          Originating temporary difference                 (300,000)

         

The temporary difference will reverse evenly over the next three years at an enacted tax rate of 20%. The enacted tax rate for 2021 is 25%.

Compute Maine’s income tax payable for the year 2021.

Answer 1

Pretax financial income for 2021 $1,500,000

Less: Tax exempt interest (140,000)

Temporary difference originated (300,000)

Net taxable income $1,060,000

Tax payable @ 25% $1,060,000 * 25% = $265,000

Tax payable for 2021, is $265,000

Note: Temporary difference is not chargeable to tax for the year 2021, but creates deferred tax liability in the year 2021.

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