You have been assigned to compute the income tax provision for Tulip City Flowers, Inc. (TCF) as of December 31, 2017. The company’s federal income tax rate is 34%. The company’s Income Statement for 2017 is provided below:

Tulip City Flowers, Inc.

Statement of Operations

at December 31, 2017

Net sales ...........................................................................................  $20,000,000

Cost of sales .....................................................................................    12,000,000

Gross profit ......................................................................................      8,000,000

Compensation .................................................................................         500,000

Selling expenses...............................................................................         750,000

Depreciation and amortization .....................................................      1,250,000

Other expenses..............................................................................        1,000,000

Total operating expenses...............................................................      3,500,000

Income from operations................................................................    $4,500,000

Interest and other income ............................................................           25,000

Income before income taxes ........................................................   $4,525,000

You have identified the following permanent differences:

Interest income from municipal bonds: $10,000

Nondeductible stock compensation: $5,000

Domestic production activities deduction (DPAD): $8,000

Nondeductible fines: $1,000

TCF prepared the following schedule of temporary differences from the beginning of the year to the end of the year:

a. Compute TCF’s current income tax expense or benefit for 2017.

b. Compute TCF’s deferred income tax expense or benefit for 2017.

c. Prepare a reconciliation of TCF’s total income tax provision with its hypothetical income tax expense in both dollars and rates.

d. Assume TCF’s tax rate increased to 35% in 2017. Recompute TCF’s deferred income tax expense or benefit for 2017 using the following template:

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Tulip City Flowers, Inc. Temporary Difference Scheduling Template BOY Ending Beginning Current EOY Year Deferred Taxable Cumulative Deferred Cumulative Temporary Differences Taxes (@ 34%) Taxes (@ 34%) T/D Change T/D (5,000,000) (1,700,000) (5,500,000) Accumulated depreciation (500,000) (1,870,000) Current EOY Ending BOY Beginning Deferred Deductible Cumulative Deferred Year Cumulative Тахes (@ 34%) Taxes (@ 34%) Temporary Differences T/D Change T/D 37,400 Allowance for bad debts 100,000 34,000 10,000 110,000 20,000 Prepaid income 20,000 6,800 Deferred compensation 50,000 17,000 10,000 60,000 20,400 170,000 Accrued pension liabilities 500,000 100,000 600,000 204,000 Total 650,000 221,000 140,000 790,000 268,600