Question

Hertz Co. prepared the following reconciliation of its pretax financial statement income to taxable income for the year ended December 31, 2013, its first year of operations:

Pretax financial income                                                                          $300,000

Nontaxable interest received on municipal securities                       (15,000)

Estimated warranties not deductible for tax purpose in 2013              35,000

Depreciation in excess of financial statement amount                    (30 ,000)

Taxable income                                                                                        $290,000

Hertz’s tax rate for Year 2013 and for future years is 40%.

(a) In its Year 1 income statement, what amount should Hertz report as income tax expense-current portion?

(b) In its December 31, 2013 balance sheet, what amount should Hertz report as deferred income tax liability/asset?

 

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