Question

Grand Corporation reported pretax book income of $610,000. Tax depreciation exceeded book depreciation by $520,000. In addition, the company received $255,000 of tax-exempt municipal bond interest. The company’s prior-year tax return showed taxable income of $64,000. Compute the company’s current income tax expense or benefit.

Answer 1

To calculate the company's current income tax expense or benefit, subtract the tax depreciation from the pretax book income and add the tax-exempt municipal bond interest. Finally, apply the appropriate tax rate to the taxable income.

Step-by-step explanation:

To calculate the company's current income tax expense or benefit, we need to consider the tax depreciation and book depreciation difference, as well as the tax-exempt municipal bond interest.

First, we calculate the taxable income by subtracting the tax depreciation from the pretax book income: $610,000 - $520,000 = $90,000.

Next, we add the tax-exempt municipal bond interest to the taxable income: $90,000 + $255,000 = $345,000.

Finally, we calculate the income tax expense or benefit by applying the appropriate tax rate to the taxable income. The tax rate will depend on the jurisdiction and the company's tax rate for the current year.

Answer 2

Since the tax rate is not mentioned, The company’s current income tax expense or benefit is $64000*tax rate.

Step-by-step explanation:

Net operating loss = pretax book income - depreciation - tax-exempt municipal bond interest

= 610000 - 520000 - 255000

= -165000

Current tax benefit = Net Operating Loss carryback to prior year*tax rate

=64000*tax rate

Therefore, since the tax rate is not mentioned, The company’s current income tax expense or benefit is $64000*tax rate.