Question

For the current year, Centipede Corp. had $80 million in pretax accounting income. This included bad debt expense of $6 million based on the allowance method, and $20 million in depreciation expense. Two million in receivables were written off as uncollectible, and MACRS depreciation amounted to $35 million. In the absence of other temporary or permanent differences, what was Centipede's income tax payable currently, assuming a tax rate of 40%: Points out of 6.00 P Flag question 

Select one: 

 a. 27.6 million 

 b. 19.6 million 

 c. 25.2 million 

 d. 29.2 million

Answer 1

Particulars	$
Pretax accounting income	$       80,000,000
Add Bad debts allowances not allowed under tax only W/O allowed	$         4,000,000
Less Excess depreciation as per MACRS	$     (15,000,000)
Taxable income	$      69,000,000
Tax rate	40%
Tax payabble	$      27,600,000

Hence Option a is correct.

Answer 2

Accounting income = $80

Temporary difference

             Less: Depreciation ($35 – $20) = ($15)              

             Add: Bad debt expense ($6 – $2) = $4

Taxable income = $69

Enacted tax rate = 40%

Tax payable currently ($69*40%) = $27.6