Question

Marlin Corporation reported pretax book income of $1,009,000. During the current year, the net reserve for warranties increased by $26,800. In addition, book depreciation exceeded tax depreciation by $100,900. Finally, Marlin subtracted a dividends received deduction of $15,900 in computing its current year taxable income. Marlin's current income tax expense or benefit would be:

Answer 1

tax benefit

Step-by-step explanation:

pretax income 1,009,000

permanent difference:

non-taxable dividend (15,900)

book taxable income: 993,100

temporary difference:

book exceeded tax depreicaiton 100,900

warrant liablity 26,800

Government Taxable income 1,120,800

journal entry:

tax expense for the book income

deferred tax benefit for the temporary difference

tax payable for the government taxable income

It is a tax benefit as in some point because, the warranties will be recognize as expense an the depreication will match at the end of the useful life, the company's book taxable income be lower in some point to balance the current difference.