Reference no: EM132631738
Question - You have been assigned to compute the income tax provision for Motown Memories Inc. (MM) as of December 31, 2019. The company's income statement for 2019 is provided below: Motown Memories Inc. Statement of Operations at December 31, 2019
Net sales $50,000,000
Cost of sales 28,000,000
Gross profit $22,000,000
Compensation $2,000,000
Selling expenses 1,500,000
Depreciation and amortization 4,000,000
Other expenses 500,000
Total operating expenses $8,000,000
Income from operations $14,000,000
Interest and other income 1,000,000
Income before income taxes $15,000,000
You identified the following permanent differences:
Interest income from municipal bonds $50,000
Nondeductible meals $20,000
Nondeductible fines $5,000
MM prepared the following schedule of temporary differences from the beginning of the year to the end of the year: Motown Memories Inc. Temporary Difference Scheduling Template Taxable Temporary Differences Beginning Deferred Taxes Current Year Change EOY Cumulative T/D EOY
Deferred Taxes Accumulated depreciation $(1,680,000) $(1,000,000) $(9,000,000) $(1,890,000)
Deductible Temporary Differences BOY Deferred Taxes Current Year Change EOY Cumulative T/D EOY Deferred Taxes Allowance for bad debts $42,000 $50,000 $250,000 $52,500
Reserve for warranties 21,000 20,000 120,000 25,200
Inventory §263A adjustment 50,400 60,000 300,000 63,000
Deferred compensation 10,500 10,000 60,000 12,600
Accrued pension liabilities 630,000 250,000 3,250,000 682,500
Total $753,900 $390,000 $3,980,000 $835,800
{the current income tax expense is $3,016,650 and the total income tax provision is $3,144,750, but I am not sure how to set it up to arrive at those numbers.}
Required -
A. Compute MM's current income tax expense or benefit for 2019.
B. Compute MM's deferred income tax expense or benefit for 2019.
C. Reconciliation of MM's total income tax provision with its hypothetical income tax expense of 21% in both dollars and rates.