Question

In its 2016 income statement, Tow Inc. reported proceeds from an officer's life insurance policy of $90,000 and depreciation of $250,000. Tow was the owner and beneficiary of the life insurance on its officer. Tow deducted depreciation of $370,000 in its 2016 income tax return when the tax rate was 25%. Data related to the reversal of the excess tax deduction for depreciation follow:_______. Year Reversal of excess tax deduction Enacted tax rates2017 $10,000 30%2018 20,000 30%2019 40,000 35%2020 50,000 35% There are no other temporary differences. Taxable income in 2016 is $68,000. Tow expects to report profits (rather than losses) for tax purposes for all future years. What is 2016 Income Tax Expense? a. $57,500 b. $47,000 c. $84,500 d. $53,000 e. $80,000

Answer 1

A.. $57,500

Step-by-step explanation:

Calculation for 2016 Income Tax Expense?

First step is to calculate the deferred tax liability

Year Reversal Tax rates Deferred Tax Liability

2017 $10,000 30% $3,000

2018 $20,000 30% $6,000

2019 $40,000 35% $14,000

2020 $50,000 35% $17,500

TOTAL Deferred tax liability $40,500

Second step is to find the Income tax on current year taxable income

Income tax= 68,000 * 25%

Income tax = 17,000

Last step is to find the total income tax expense to be recorded in the year 2016

Using this formula

Income tax expense= Deferred tax liability +Income tax

Let plug in the formula

Income tax expense=$40,500+$17,000

Income tax expense= $57,500

Therefore the Income Tax Expense for the year 2016 will be $57,500