You have been assigned to compute the income tax provision for Motown Memories Inc. (MM) as of

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You have been assigned to compute the income tax provision for Motown Memories Inc. (MM) as of December 31, 2015. The company's federal income tax rate is 34 percent. The company's income statement for 2015 is provided below:
Motown Memories Inc.
Statement of Operations at December 31, 2015
Net sales...............................................................$50,000,000
Cost of sales............................................................28,000,000
Gross profit............................................................$22,000,000
Compensation.........................................................$ 2,000,000
Selling expenses..........................................................1,500,000
Depreciation and amortization.........................................4,000,000
Other expenses.............................................................500,000
Total operating expenses..............................................$ 8,000,000
Income from operations.............................................$14,000,000
Interest and other income..............................................1,000,000
Income before income taxes........................................$15,000,000
You identified the following permanent differences:
Interest income from municipal bonds:..............................................$ 50,000
Nondeductible meals and entertainment expenses: ................................$ 20,000
Domestic production activities deduction: .........................................$250,000
Nondeductible fines: ....................................................................$ 5,000
MM prepared the following schedule of temporary differences from the beginning of the year to the end of the year:
Motown Memories Inc. Temporary Difference Scheduling Template Beginning Ending Deferred Taxes (@ 34%) Taxable Temporary
Deductible BOY Beginning Current EOY Ending Temporary Differences Cumulative Deferred Year Cumulative Deferred T/D Taxes

Required:
a) Compute MM's current income tax expense or benefit for 2015.
b) Compute MM's deferred income tax expense or benefit for 2015.
c) Prepare a reconciliation of MM's total income tax provision with its hypothetical income tax expense in both dollars and rates.

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Taxation Of Individuals And Business Entities 2016

ISBN: 9781259334870

7th Edition

Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

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