Question

Sandoval Company operates in a country in which distributed profits are taxed at 25 percent and undistributed profits are taxed at 30 percent. In Year 1, Sandoval generated pretax profit of $100,000 and paid $20,000 in dividends from its Year 1 earnings. In Year 2, Sandoval generated pretax profit of $120,000 and paid dividends of $40,000 from its Year 1 earnings. What amounts should Sandoval recognize as current tax expense in Years 1 and 2, respectively?

Answer 1

The amounts that Sandoval should recognize as current tax expense in Years 1 and 2 are $29,000 and $34,000, respectively.

Step-by-step explanation:

year 1:

$80,000*30% + $20,000*25%

= $29,000

year 2:

$120,000*30% - $40,000*(30%-25%)

= $34,000

Therefore, The amounts that Sandoval should recognize as current tax expense in Years 1 and 2 are $29,000 and $34,000, respectively.