Question

Randolph Company reported pretax net income from continuing operations of $823,000 and taxable income of $550,000. The book-tax difference of $273,000 was due to a $215,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $154,000 due to an increase in the reserve for bad debts, and a $212,000 favorable permanent difference from the receipt of life insurance proceeds. a. Compute Randolph Company’s current income tax expense b. Compute Randolph Company’s deferred income tax expense or benefit. c. Compute Randolph Company’s effective tax rate. (Round your answer to 2 decimal places.)

Answer 1

1)

Pre-tax net income	823,000
Favorable temporary difference	-215,000
Unfavorable temporary difference	154,000
Favorable permanent difference	-212,000
Taxable income	550,000
34%	34%
Current income tax payable	187,000

　

2)

Favorable temporary difference	-215,000
Unfavorable temporary difference	154,000
Net Favorable temporary difference	-61,000
34%	34%
Deferred tax expense (liability)	-20740

　

3) Total income tax provision = 187,000 + 20,740 = 207,740

Effective tax rate = 207,740 / 723,000 * 100 = 28.73%