Question

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

a.$151,200
b.$25,200
c.$100,800
d.$126,000

Answer 1

c.$100,800

Step-by-step explanation:

Deferred tax refers to timing and temporary difference between accounting and tax bases.

From the question, since the tax depreciation is greater by $120,000, tax expense becomes( $600,000-$120,000) x 21%