Reference no: EM132905631

Sky Trading Corp. has the following income and expenses for the years 2020 and 2021. During 2020, bad debts worth P 10,000 were written off and allowed as deductions by the BIR the whole amount, however, was recovered during 2021.

2020:

Gross Income P 100,000
Less: Bad debts P 10,000
Other expenses 40,000 50,000
Net Income P 50,000

2021:

Gross Income P 120,000
Less: Expenses 70,000
Net Income P 50,000

Problem 1: How much is the tax benefit to Sky Trading Corp. in 2020 as a result of the BIR allowing bad debt write-off as a deduction in 2020?

Problem 2: How much is the additional tax in 2021 as a consequence of the bad debt recovery (Corporate Tax Rate is 20% of Net Income)?