Question

Packard Corporation reported pretax book income of $500,000. Included in the computation were favorable temporary differences of $10,000, unfavorable temporary differences of $100,000, and unfavorable permanent differences of $80,000. The corporation's current income tax expense or benefit would be:

Answer 1

To determine Packard Corporation's current income tax expense, adjust the pretax book income for temporary differences, and apply the corporate tax rate to the adjusted taxable income. Unfavorable permanent differences are not included in this calculation.

Step-by-step explanation:

To calculate Packard Corporation's current income tax expense, we must first adjust its pretax book income by subtracting both favorable and unfavorable temporary differences, as well as unfavorable permanent differences. The adjusted taxable income then is used to apply the tax rate to find the current income tax expense.

1. Start with the pretax book income of $500,000.
2. Subtract the favorable temporary differences of $10,000.
3. Add back the unfavorable temporary differences of $100,000.
4. Do not adjust for the unfavorable permanent differences as they do not affect taxable income.
5. The adjusted taxable income would therefore be $590,000 ($500,000 - $10,000 + $100,000).
6. Assuming a flat corporate tax rate from the provided information, such as 34%, the current income tax expense would be $200,600 ($590,000 x 34%).

In this scenario, the presence of the unfavorable permanent differences of $80,000 is not considered in the computation of current income tax expenses, as permanent differences do not reverse over time and therefore do not affect taxable income.

Answer 2

The corporation's current income tax expense or benefit would be $170100.

Step-by-step explanation:

income tax expense or benefit = $500,000 + $100,000 - $10,000 -$80,000)*21%

= $107,100

Therefore, the corporation's current income tax expense or benefit would be $170100.