Question

Armageddon Corporation
Accounting for Income Taxes, Year Ended December 31, 2018
Income before all income taxes (GAAP basis)					$25,000,000
Depreciation expense included in GAAP income above					3,200,000
Depreciation expense, tax basis (IRC)					4,700,000
Entertainment expenses (assume not deductible)					450,000
Meals expense (assume 50% deductible for tax)					183,000
Inventory write-down (inventory to be disposed of after 12/31/18))					450,000
Interest income, municipal bonds					175,000
Income earned in a country with a 10% tax rate, no U.S. federal income taxes are due on this income now or in the future					5,200,000
Solar power tax credit					100,000
State income tax expense (and currently payable), calculated for you					125,000
Assume there are no temporary or permanent differences for state income taxes
1. Calculate “book” taxable income. (GAAP)
2. Calculate “tax” taxable income. (Tax return)
3. Prepare the journal entry to record the income tax provision and all related assets and liabilities (deferred taxes and taxes payable/refundable).
4. Calculate the effective tax rate.
5. Reconcile the effective tax rate to the federal statutory tax rate of 21%.

Answer 1