Question

Grand River Corporation reported pretax book income of $700,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $170,000, and favorable permanent differences of $200,000. The corporation's current income tax expense or benefit would be:

Answer 1

The income subject to tax is 470,000

Income tax expense 105,000 debit

Income tax payable 98,700 credit

Income tax liability 6,300 credit

DISCLAMER:

We aren't given any tax-rate thus we calculate based on the 2020 tax for corporation which is 21%

Step-by-step explanation:

The permanent difference will be ignored as they are permanent will not produce tax liability or tax assets in the future.

favorable temporary difference 200,000

unfavorable temporary difference (170,000)

net favorable temporary difference 30,000

In the current period, the company will pay for a tax-base 30,000 less

but, in the future this difference will settle this, I will create a tax-liability

30,000 x 21% = 6,300

income subject to income tax:

book income 700,000

permanent difference (200,000)

accounting taxable income 500,000

temporary difference (30,000)

Taxable Income 470,000

Income tax expense: 470,000 x 21% = 98,700

income tax expense: 500,000 x 21% = 105,000