Question

li corporation reported pretax book income of $675,000. tax depreciation exceeded book depreciation by $415,000. li's beginning book (tax) basis in its fixed assets was $1,975,000 ($1,760,000) and its ending book (tax) basis is $1,875,000 ($1,290,000). in addition, the company received $375,000 of tax-exempt municipal bond interest. the company's prior-year tax return showed taxable income of $55,000. assuming a tax rate of 21 percent, compute the company's deferred income tax expense or benefit.

Answer 1

Using the formula for deferred income tax expense or benefit, the company's deferred income tax expense or benefit is $87,150.

Step-by-step explanation:

To calculate the deferred income tax expense or benefit, we need to determine the temporary differences between book income and taxable income. In this case, the temporary difference is the difference between tax depreciation and book depreciation, which is $415,000. We also need to consider the tax-exempt municipal bond interest income of $375,000.

We can calculate the deferred income tax expense or benefit using the formula:

Deferred Income Tax Expense/Benefit = Temporary Difference * Tax Rate

Deferred Income Tax Expense/Benefit = $415,000 + $375,000 * 0.21

Deferred Income Tax Expense/Benefit = $87,150