Question

Question 1

Pharoah Corporation prepared the following reconciliation for its first year of operations:

Pretax financial income for 2018	$2900000
Tax exempt interest	(154000)
Originating temporary difference	(458000)
Taxable income	$2288000

The temporary difference will reverse evenly over the next 2 years at an enacted tax rate of 40%. The enacted tax rate for 2018 is 28%. What amount should be reported in its 2018 income statement as the current portion of its provision for income taxes?

(pick one)

$915200

$640640

$812000

$1160000

Answer 1

• Provision for Income taxes refers to the Income tax that will be payable based on current year performance.
• Since the income tax payable is to be paid in the coming period, whole provision will be of ‘current’ nature.
• Taxable Income = $ 2,288,000
  Income tax rate = 28%
  Income tax payable for 2018, payable in 2019 = $ 2,288,000 x 28% = $ 640,640
• Hence, current answer is Option 2^nd: $ 640,640
• Creation of Deferred Tax Liability/Asset due to temporary differences will not provision for income taxes payable, it will affect Deferred Tax accounts.