Question

Burcham Corporation reported pretax book income of $707,500. Tax depreciation exceeded book depreciation by $565,000. In addition, the company received $272,000 of tax-exempt municipal bond interest. The company’s prior-year tax return showed taxable income of $62,000. Compute the company’s book equivalent of taxable income. Use this number to compute the company’s total income tax provision or benefit.

Answer 1

Company’s book equivalent of taxable income	$435,500
Company’s total income tax provision or benefit	$91,455

Explanation:

Pretax book income	$707,500
Less: Tax-exempt municipal bond interest	($272,000)
Company’s book equivalent of taxable income	$435,500
* Tax rate (Note 1)	21 %
Company’s total income tax provision or benefit	$91,455

Note 1: Since the tax rate is not mentioned in the question, the tax rate is taken as nominal federal corporate tax rate of 21 %.