Question

Willingham, Inc., an accrual basis C corporation, reports pretax book income of $1,600,000. At the beginning of the year, Willingham reported no deferred tax accounts on its balance sheet. At the end of the year, Willingham’s depreciable assets had a net book value of $15,000,000. It is subject to a 21% U.S. income tax rate in the current year and for the foreseeable future.

Willingham’s book-tax differences include the following. Compute the entity’s current and deferred Federal income tax expense for the year.

Answer 1

Willingham, Inc. reports pretax book income of $1,600,000. The entity is subject to a 21% income tax rate, so its current Federal income tax expense would be 21% * $1,600,000 = $<<21*.01*1600000=33600>>336,000.

If Willingham has no deferred tax accounts on its balance sheet at the beginning of the year and its depreciable assets have a net book value of $15,000,000 at the end of the year, then it likely has a significant amount of depreciation expense on its income statement. This would create a book-tax difference, as depreciation expense is deductible for tax purposes but not for book purposes. As a result, Willingham may have a deferred tax liability on its balance sheet at the end of the year.

To calculate the deferred tax liability, we would need to know the amount of depreciation expense on Willingham's income statement and the difference between the depreciation expense for book and tax purposes. With this information, we can calculate the deferred tax liability as follows:

Deferred tax liability = (Book depreciation expense - Tax depreciation expense) * Tax rate

Without more information about Willingham's depreciation expense and book-tax differences, it is not possible to calculate the entity's deferred tax liability.