Question

For the current year ($ in millions), Universal Corp. had $80 in pretax accounting income. This included warranty expense of $7 and $20 in depreciation expense. Two million of warranty costs were incurred, and depreciation deductions in the tax return amounted to $30. In the absence of other temporary or permanent differences, what was Universal's income tax payable currently, assuming a tax rate of 25%

Answer 1

$18.75

Step-by-step explanation:

Calculation to determine the Universal's income tax payable currently

Accounting income $80

Depreciation ($30 - 20) (10)

Warranty expense ($7 - 2) 5

Taxable income $75

($80-$10+$5)

Enacted tax rate 25%

Tax payable currently $18.75

(25%*$75)

Therefore the Universal's income tax payable currently will be $18.75