Reference no: EM132972123
For calendar 2020, Melvin Corp. reported depreciation expense of $ 800,000 on its income statement, but on its 2020 income tax return, Melvin claimed CCA of $ 1,200,000. The 2020 income statement also included $ 150,000 in warranty expenses that will be deducted for tax purposes when it will be paid. Melvin's income tax rates are 30% for 2020, 2021 and 2022, and 24% for 2023 and all tax rates are known in advance in 2019.
The depreciation difference and warranty expense will reverse over the next three years as follows:
Depreciation Difference Warranty Expense
2021 $280,000 $ 30,000
2022 (30,000) 50,000
2023 150,000 70,000
$400,000 $150,000
Problem 1: Before considering a tax loss carryforward of $80 million, Fama Corporation reported $200 million of pretax accounting and taxable income in the current year. The income tax rate for all previous years was 40%. On January 1 of the current year a new tax law was enacted, reducing the rate to 30% effective immediately. Fama's income tax payable for the current year would be:
a. $28 million.
b. $48 million.
c. $80 million.
d. $60 million.
e. $36 million.
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