Question

Pretax financial statement income for the year ended December 31, 2018, was $25 million for Scott Pen Company. Scott’s taxable income was $30 million. This was a result of differences between depreciation for financial reporting purposes and tax purposes. The enacted tax rate is 30% for 2018 and 40% thereafter. What amount should Scott report as the current portion of income tax expense for 2018?

a. $7.5 millionb. $ 9 millionc. $ 10 milliond. $ 12 million

Answer 1

B. $ 9 million

Step-by-step explanation:

Pretax financial statement income for the year ended December 31 2018

Scott’s taxable income $30 million

Enacted tax rate is 30% for 2018

Hence;

$30 million × 30% = $9 million

Therefore the amount Scott should report as the current portion of income tax expense for 2018 is $9 million

Answer 2

Option B $9 million is the correct answer.

Step-by-step explanation:

The current portion of income tax expense is the taxable for the year multiplied by the prevalen tax rate in the year.

Current portion of income tax expense=taxable income*tax rate

taxable income is $30 million

tax rate is 30%

current portion of income tax expense=$30 million*30%=$ 9 million

Option B is the correct answer

However,if one chooses option A,it implies that one had used pretax net income of $25 million in computing the income tax expenses instead of taxable income on which tax is payable