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Budlow, Inc., reported the following results for the current year. Book income (before tax) $500,000 Tax...

Budlow, Inc., reported the following results for the current year.

Book income (before tax)

$500,000
Tax depreciation in excess of book

75,000
Warranty expense, not deductible currently

17,500
Municipal bond interest income

10,000

Determine Budlow’s taxable income for the current year. Identify any temporary or permanent book-tax differences.

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Answer #1

Book Income (before tax)

$500,000

Tax depreication in excess of book

($75,000)

*Temporary difference leading to Deferred tax liability, reversible in future

Warranty expense, not deductible currently

$17,500

*Temporary difference leading to Deferred tax ASSET, reversible in future

Municipal bond interest income

($10,000)

*Permanent difference

Taxable Income

$432,500
  • Taxable Income = $ 432,500
  • Temporary Difference = $ 75000 – 17500 = $ 57,500 [Deferred tax liability]
  • Permanent difference = $ 10000
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