Question

Costello Corporation reported pretax book income of $500,900. During the current year, the reserve for bad debts increased by $6,800. In addition, tax depreciation exceeded book depreciation by $40,900. Finally, Costello received $3,450 of tax-exempt life insurance proceeds from the death of one of its officers. Costello's deferred income tax expense or benefit would be:

Answer 1

Deferred income tax expense = $7,161

Step-by-step explanation:

Given:

Bed debts increase = $6,800

Depericiation increase = $40,900

Tax-exempt life insurance = $3,450

Computation:

Assume tax rate = 21%

Taxable difference = 40,900 - 6,800

Taxable difference = 34,100

Deferred income tax expense = 34,100 × 21%

Deferred income tax expense = $7,161