Question

Information for Hobson Corp. for the current year ($ in millions): Income from continuing operations before tax $ 250 Loss on discontinued operation (pretax) 50 Temporary differences (all related to operating income): Accrued warranty expense in excess of expense included in operating income 10 Depreciation deducted on tax return in excess of depreciation expense 15 Permanent differences (all related to operating income): Nondeductible portion of entertainment expense 10 The applicable enacted tax rate for all periods is 40%. How much tax expense on income from continuing operations would be reported in Hobson's income statement? Multiple Choice $90 million. $104 million. $102 million. $100 million.

Answer 1

104 million

Step-by-step explanation:

A = Income from continuing operations before tax

B = Accrued warranty expense in excess of expense included in operating income

C = Depreciation deducted on tax return in excess of depreciation expense

D = Nondeductible portion of entertainment expense

E = Applicable enacted tax rate for all periods

Tax payable = (A - B - C + D) * E

Tax payable = (250 - 10 - 15 + 10) * 40% = 235 * 40% = 94 million

Deferred tax = (B + C) * E

Deferred tax = (10 + 15) * 40% = 25 * 40% = 10 million

Total tax expense = Tax payable + Deferred tax

= 94 million + 10 million = 104 million

Hope this helps!