[vodrldnr]

1. Pine Corp.’s books showed pretax income of $800,000 for the year ended December 31, year 3. In the computation of federal income taxes, the following data were considered:

Gain on an involuntary conversion (Pine has elected to replace the property within the statutory period using total proceeds) $350,000

Depreciation deducted for tax purposes in excess of depreciable deducted for book purposes 50,000

Federal estimated tax payments, year 3 70,000

Enacted federal tax rate, year 3 30%

What amount should Pine report as its current federal income tax liability on its December 31, year 3 balance sheet? answer : 50,000

2. For the year ended December 31, 2011, Tyre Company reported pre-tax financial statement income of $750,000. Its taxable income was $650,000. The difference is due to accelerated depreciation for income tax purposes. Tyre’s income tax rate is 30%, and it made estimated tax payments of $90,000 during 2011.

What amount should Tyre report as the current portion of income tax expense for 2011?

answer : 195,000

My question is why I do not subtract the estimated tax payment to solve question 2 like I did subtract estimated tax payment to get the answer on question 1.

can someone explain it for me ???plz???

It ain't About How Hard You Hit

[confusedcandidate]

I agree the questions are worded poorly, especially the first one. It looks like the company calculated their book income as 800k, which includes a nontaxable gain. The gain isn't taxable because they'll be ‘replacing it within a statutory period' so you take it out of income. Remove the 350k from their book income, and then take out another 50k for extra tax depreciation, and their tax income is 400k. 400x.3=120k, and they've already paid 70k, so the remaining liability is 50k. Make sense? Tough question!

The second one is more clear though. It just asks for the expense, which is just taxable income x tax rate, so you don't have to get fancy with your estimated payments and stuff.

Hope that helps!

Weekends are meaningless to a CPA candidate

[Harambe]

Question one asks for the liability. Pine has already made estimated tax payments throughout the year, so the portion of its tax expense that is in excess of its estimated payments is the liability.

Question two asks for the expense, which is what you're probably used to calculating. It doesn't take the estimated tax payments into account, even if the company has prepaid its taxes for the year.

Try to read these questions slowly and pay attention to the minutia. You'll get it! Good luck!

[Author]

Replies