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ABC Co. Started Its Operations

ABC Co. started operations on January 1, 20x1 and reported pretax incomes of $400,000 and $500,000 in 20x2 and 20x1 respectively. There were temporary differences in assets and liabilities between the carrying and tax bases each year. To calculate the current tax expense for 20x2, the pretax income, any permanent differences, changes in temporary differences from 20x1 to 20x2, and the tax rate of 30% are used. Based on this information, the current tax expense for 20x2 is $120,600.

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532 views1 page

ABC Co. Started Its Operations

ABC Co. started operations on January 1, 20x1 and reported pretax incomes of $400,000 and $500,000 in 20x2 and 20x1 respectively. There were temporary differences in assets and liabilities between the carrying and tax bases each year. To calculate the current tax expense for 20x2, the pretax income, any permanent differences, changes in temporary differences from 20x1 to 20x2, and the tax rate of 30% are used. Based on this information, the current tax expense for 20x2 is $120,600.

Uploaded by

Queen Valle
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

ABC Co. started its operations on January 1, 20x1.

Information on temporary differences during the


first two years of operations is shown below:

Dec. 31, 20x2 Dec. 31, 20x1


Carrying Differenc Carrying
amount Tax base e amount Tax base Difference
Assets 100,000 90,000 10,000 120,000 100,000 20,000
Liabilities 50,000 43,000 7,000 60,000 45,000 15,000

Pretax incomes were ₱400,000 and ₱500,000 in 20x2 and 20x1, respectively. Income tax rate is
30%.

How much is the current tax expense in 20x2?

Solutions:

20x1
The 20x1 income tax expense and current tax expense are computed as:

Multiply by
Description of items Tax rate
Description of items
Pretax income 500,000
Permanent difference: -
Acctg. profit subj. to tax 500,000 30% ITE 150,000
Less:  TTD (20,000) 30% Less:  DTL (6,000)
Add:  DTD 15,000 30% Add:  DTA 4,500
Taxable profit - 20x1 495,000 30% CTE 148,500

20x2
The 20x2 income tax expense and current tax expense are computed as:

Multiply by
Description of items Tax rate
Description of items
Pretax income 400,000
Permanent difference: -
Acctg. profit subj. to tax 400,000 30% ITE 120,000
ADD:  TTD (10,000) 30% ADD:  DTL 3,000
LESS:  DTD 8,000 30% LESS:  DTA (2,400)
Taxable profit - 20x1 402,000 30% CTE 120,600

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