Question

Phyllis, Inc., earns book net income before tax of $600,000. Phyllis puts into service a depreciable asset this year, and first year tax depreciation exceeds book depreciation by $120,000. Phyllis has recorded no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21%, what is Phyllis's total income tax expense reported on its GAAP financial statements?

a. $252,000b. $210,000c. $168,000d. $42,000

Answer 1

b. $210,000

Step-by-step explanation:

The computation of the total income tax expense is shown below:

= Net income before tax × U.S tax rate

= $600,000 × 21%

= $210,000

As in the question, the net income before tax includes depreciation expense so we do not add it again. That's why we do not consider the depreciation expense in the computation part.