Refer to the facts in the preceding example. For its second taxable year, Rony Inc.’s accounting records showed the following:
Net income before tax ………………………….. $1,200,000
Reversal of year 1 book/tax difference …………. (90,000)
Taxable income before NOL deduction ……….. $1,110,000
NOL deduction ………………………………… (710,000)
Taxable income ………………………………….. $ 400,000
a. Use a 34 percent rate to compute Rony’s tax expense for financial statement purposes.
b. Use a 34 percent rate to compute Rony’s tax payable.
c. Compute Rony’s reduction in its deferred tax assets.