Question

Prance, Inc., earned pretax book net income of $1,781,000 in 2021. Prance acquired a depreciable asset that year, and first-year tax depreciation exceeded book depreciation by $178,100. Prance reported no other temporary or permanent book-tax differences. The pertinent U.S. Federal corporate income tax rate is 21% and Prance earned an after-tax rate of return on capital of 4%. If required, round your answers to the nearest dollar. Compute Prance's current income tax benefit or expense for the year.

Answer 1

Prance, Inc.'s current income tax expense for the year is calculated as $336,609 by adjusting the pretax book net income with excess tax depreciation over book and applying the 21% tax rate.

Step-by-step explanation:

The student has asked how to compute the current income tax benefit or expense for Prance, Inc. for the year, given a pretax book net income of $1,781,000 and the fact that the first year tax depreciation exceeded book depreciation by $178,100, with no other book-tax differences. The tax rate provided is 21%.

To calculate the current income tax expense, we start with the pretax book net income and adjust for the excess depreciation for tax over book:

• Pretax book net income: $1,781,000
• Excess tax depreciation over book: $178,100

This results in taxable income of $1,602,900 ($1,781,000 - $178,100), which when multiplied by the tax rate of 21%, yields a current income tax expense of $336,609 ($1,602,900 * 21%).

Therefore, Prance, Inc.'s current income tax benefit or expense for the year is an expense of $336,609.