Stubfoot Co.'s accounting team has determined that income before taxes for 2022 will be $229,000, a huge improvement over the $91,600 that the company reported in 2021. The calculation of their 2022 income before taxes includes $1,400 in tax-exempt municipal bond interest and a life insurance payout of $105,000. It also includes $23,000 in rent revenue, $61,000 in depreciation, and $20,152 in warranty expense.

The rent revenue was for a storage space rented by Sampson, Inc. for two years: 2021 and 2022. Sampson, Inc. paid the rent of $46,000 at the beginning of 2022.

The depreciation expense is for production equipment purchased in 2021, when Stubfoot Co. started. At the time, the accounting department calculated that depreciation would be the same for three years. The tax department, on the other hand, estimated deprecation for tax purposes of $73,200 in 2021, $29,280 in 2022, and $19,520 in 2023.

The warranty expense is for a guarantee offered by Stubfoot Co. on new purchases. It's an extended warranty, since the company is still new, and they will replace it at the beginning of 2023 with a traditional one year warranty. The production department estimated warranty cost of $18,320 in 2021 and of $20,152 in 2022. The actual cost of honoring the warranty was $4,000 in 2021 and $23,000 in 2022. The remaining $11,472 will be paid out in 2023. Since no new warranties of this type will be offered, in 2023 they will pay off the warranties and close them out.

With all of these changes, Stubfoot Co.'s CEO is concerned about how taxes will affect their 2022 net income. After all, the company is getting ready for a SEO and they want to report really solid numbers. For reference, their 2021 tax rate was 22% and their 2022 tax rate is 24%. The tax department estimates that the rate will change to 26% in 2023. Also, the company reported a deferred tax liability of $14,731 on its 2021 balance sheet.

1.What is the company's taxable income for the current year?

2. What will the company report as their ending balance in the Deferred Taxes account?

3. How much will the company report as Income Tax Expense?

4. What will be the company's final Net Income?

Answer rating: 100% (QA)

1 To calculate the companys taxable income for the current year start with inc... View the full answer