C is corrent. The current federal income tax liability is based on taxable income, which is computed in the “book to tax reconciliation” below. | Accounting income | $800,000 | | Nontaxable gain | (350,000) | | Excess tax depreciation | (50,000) | | Taxable income | $400,000 |
The gain on involuntary conversion was included in accounting income but is deferred for tax purposes. Depreciation deducted for tax purposes in excess of book depreciation also causes taxable income to be less than accounting income. Taxes payable before considering estimated tax payments is $120,000 ($400,000 x 30%). Since tax payments of $70,000 have already been made, the 12/31/Y3 current federal income tax liability is $50,000 ($120,000 – $70,000).A is incorrect. The current federal income tax liability is based on taxable income, which is computed in the “book to tax reconciliation” below. | Accounting income | $800,000 | | Nontaxable gain | (350,000) | | Excess tax depreciation | (50,000) | | Taxable income | $400,000 |
The gain on involuntary conversion was included in accounting income but is deferred for tax purposes. Depreciation deducted for tax purposes in excess of book depreciation also causes taxable income to be less than accounting income. Taxes payable before considering estimated tax payments is $120,000 ($400,000 x 30%). Since tax payments of $70,000 have already been made, the 12/31/Y3 current federal income tax liability is $50,000 ($120,000 – $70,000). B is incorrect. The current federal income tax liability is based on taxable income, which is computed in the “book to tax reconciliation” below. | Accounting income | $800,000 | | Nontaxable gain | (350,000) | | Excess tax depreciation | (50,000) | | Taxable income | $400,000 |
The gain on involuntary conversion was included in accounting income but is deferred for tax purposes. Depreciation deducted for tax purposes in excess of book depreciation also causes taxable income to be less than accounting income. Taxes payable before considering estimated tax payments is $120,000 ($400,000 x 30%). Since tax payments of $70,000 have already been made, the 12/31/Y3 current federal income tax liability is $50,000 ($120,000 – $70,000). D is incorrect. The current federal income tax liability is based on taxable income, which is computed in the “book to tax reconciliation” below. | Accounting income | $800,000 | | Nontaxable gain | (350,000) | | Excess tax depreciation | (50,000) | | Taxable income | $400,000 |
The gain on involuntary conversion was included in accounting income but is deferred for tax purposes. Depreciation deducted for tax purposes in excess of book depreciation also causes taxable income to be less than accounting income. Taxes payable before considering estimated tax payments is $120,000 ($400,000 x 30%). Since tax payments of $70,000 have already been made, the 12/31/Y3 current federal income tax liability is $50,000 ($120,000 – $70,000).
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