Zeff Co. prepared the following reconciliation of its pre-tax financial statement income to taxable income for the year ended December 31, 2005, its first year of operations:
Pre-tax financial income $160,000
Non-taxable interest received on municipal securities ($5,000)
Long-term loss accrual in excess of deductible amount $10,000
Depreciation in excess of financial statement amount ($25,000)
Taxable income $140,000
Zeff's tax rate for 2005 is 40%.
In its 2005 income statement, what amount should Zeff report as income tax expense (current portion)?
A. $52,000
B. $56,000
C. $62,000
D. $64,000
The answer is B which is 140,000 x 40%. That is also the amount of the tax liability. Wouldn't the tax expense be increased by the deferred tax liability created by the excess depreciation?
.