Question 1

A company reports Pretax Financial Income of $500,000.
- Municipal bond interest income: $20,000
- Depreciation (Tax > Book): $50,000
- Warranty Expense (Book > Tax Paid): $10,000

The enacted tax rate is 25%. What is the Current Income Tax Payable?

Accepted Answer

Start with Book Income.
1. Permanent Differences: Subtract Muni Interest.
2. Temporary Differences: Subtract Excess Tax Depr. Add Excess Book Warranty.
3. Result = Taxable Income. Multiply by Rate.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Adding Muni interest. Reversing the signs of temporary differences.

A company reports Pretax Financial Income of $500,000. <br/>- Municipal bond interest income: $20,000<br/>- Depreciation (Tax > Book): $50,000<br/>- Warranty Expense (Book > Tax Paid): $10,000<br/><br/>The enacted tax rate is 25%. What is the Current Income Tax Payable?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 3

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