Arlington Co. reported income before income taxes of $10,000,000 for the year ending December 31, 2021. You
Question:
Arlington Co. reported income before income taxes of $10,000,000 for the year ending December 31, 2021. You learned the following related to the company's income taxes:
- Tax depreciation will be $500,000 more than GAAP depreciation.
- The company received a customer deposit in December 2021 for work to be started and completed next year. The deposit was $125,000, which is taxable when received.
- The company discovered an issue with hazardous waste which it reported (as required) to the federal EPA. A fine of $1,200,000 was paid. Fines are not tax deductible.
- Of the $10 millions of income before tax, $875,000 was earned in an enterprise zone and is not subject to federal tax. (Not this year and not in the future, either.)
- The company spent $250,000 on meals and entertainment expense, half of which is not tax deductible (this may be different from current tax regulations, but this isn't a tax course so assume that is correct).
- The federal statutory tax rate is 21%, there are no other taxes that need to be considered.
Required:
For all responses, put your answer in the box provided below. Show your work on the spreadsheet, the answer alone is not sufficient.
- Calculate the company's tax provision/expense for the year 2021.
- Calculate the company's tax liability for the year 2021.
- Calculate any deferred tax assets the company should record (in total, no detail).
- Calculated any deferred tax liabilities the company should record (in total, not detail).
- Reconcile the company's effective tax rate to the statutory rate of 21% (show you calculations to a tenth of a percent, as 21.0%).
- If a goal of management is to reduce the effective tax rate, what is one action that could be taken to accomplish that? Just one.
Tax provision/expense =
Tax liability(taxes payable) =
Deferred tax asset(s) =
Deferred tax liability(ies) =
Effective tax rate reconciliation Feceral statutory rate 21.0%
Effective tax rate =
Financial Accounting An Integrated Statements Approach
ISBN: 978-0324312119
2nd Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren