Question

For 2018 tax purposes, Cass Corporation reported pretax book income of $10,000,000. During the current

year, the reserve for bad debts increased by $100,000. In addition, tax depreciation​

exceeded book depreciation by $200,000. Cass Corporation sold a fixed asset and​

reported book gain of $50,000 and tax gain of $75,000. Finally, the company received​

$250,000 of tax-exempt life insurance proceeds from the death of one of its​

officers. Compute the company’s current income tax expense or benefit.

Answer 1

The Company’s Current Income Tax Expense or Benefit Calculation -

Cass Corporation reported pretax book income     $10,000,000

Less : the reserve for bad debts increased    ($100,000)

Less : tax depreciation​ as per Income Tax (exceeded book depreciation by) ($200,000)

Add : sold a fixed asset and​ reported book gain    $50,000

Add : Tax-exempt life insurance proceeds from the death of one of its​ officers   $250,000

Add : Tax gains   $75,000
TOTAL :    $10,075,000

Tax Applicable :

Corporate Tax Rate Schedule (2005 through 2017)

If taxable income (line 30, Form 1120) on page 1 is:

Over	But not over	Tax is	Of amount over
$0	$50,000	15%	$0
50,000	75,000	$7,500 + 25%	50,000
75,000	100,000	13,750 + 34%	75,000
100,000	335,000	22,250 + 39%	100,000
335,000	10,000,000	113,900 + 34%	335,000
10,000,000	15,000,000	3,400,000 + 35%	10,000,000
15,000,000	18,333,333	5,150,000 + 38%	15,000,000
18,333,333	____	35%	0

Corporations file a tax return each year and pay quarterly estimated taxes.

So,in this case,applicable tax rates from above table are :

10,000,000

15,000,000

3,400,000 + 35%

10,000,000

So, Cass Corporation's tax is $340,000 + 35%($75,000) = $366,250