Question

Haag Corp.'s 2015 income statement showed pretax accounting income of $1,250,000. To compute the federal income tax liability, the following 2017 data were provided:

Income from exempt municipal bonds $50,000
Depreciation deducted for tax purposes in excess of depreciation
deducted for financial statement purposes $100,000
Estimated federal income tax payments made $250,000
Enacted corporate income tax rate 30%

What amount of current federal income tax liability should have been included in Hagg's December 31, 2017, balance sheet?

$80,000
$110,000
$125,000
$330,000

Answer 1

$80,000

Step-by-step explanation:

The taxable Income of the Haag Corp can be calculated using the following formula:

Taxable income=Pretax accounting income-income exempt for tax purposes-excess depreciation allowed for tax purposes.

Applying the above formula to the given question:

Pretax accounting income: $1,250,000

Income from exempt municipal bond: ($50,000)

Excess depreciation deducted for tax purposes ($100,000)

Taxable income $1,100,000

Tax on taxable income(30%*1,100,000) $330,000

Less: Federal income tax already paid ($250,000)

Tax Liability to be included in Hagg's balance sheet $80,000