Motown Memories Incorporated Statement of Operations at December 31, 2021 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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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You have been assigned to compute the income tax provision for Motown Memories Incorporated (MM) as of December 31, 2021. The company’s income statement for 2021 is provided below: (Leave no answer blank. Enter zero if applicable.)

 

Motown Memories Incorporated
Statement of Operations
at December 31, 2021
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 entertainment expenses  20,000
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 Incorporated
Temporary Differences Scheduling Template
Taxable
Temporary Differences
BOY
Deferred
Taxes
Current
Year
Change
EOY
Cumulative
T/D
EOY
Deferred
Taxes
Accumulated depreciation $ (1,680,000) $ (1,000,000) $ (9,000,000) $ (1,890,000)

 

Motown Memories Incorporated
Temporary Differences Scheduling Template
Deductible
Temporary Differences
BOY
Deferred
Taxes
Current
Year
Change
EOY
Cumulative
T/D
EOY
Deferred
Taxes
Allowance for bad debts $ 42,000 $ 50,000 $ 250,000 $ 52,500
Reserve for warranties 21,000 20,000 120,000 25,200
Inventory IRC §263A adjustment 50,400 60,000 300,000 63,000
Deferred compensation 10,500 10,000 60,000 12,600
Accrued pension liabilities 630,000 250,000 3,250,000 682,500
Total $ 753,900 $ 390,000 $ 3,980,000 $ 835,800

 

Required:

  1. Compute MM’s current income tax expense or benefit for 2021.
  2. Compute MM's deferred income tax expense or benefit for 2021.
  3. Prepare a reconciliation of MM’s total income tax provision with its hypothetical income tax expense of 21 percent in both dollars and rates.
Req A and B
Req C
Prepare a reconciliation of MM's total income tax provision with its hypothetical income tax expense of 21 percent in both
dollars and rates. (Amounts to be deducted should be indicated by a minus sign. Round your percentage answers to 2 decimal
places. Do not round intermediate values.)
Reconciliation of Effective Tax Rate
Dollars
Percent
Provision at 21%
%
%
%
%
%
Income tax provision
< Req A and B
Req C>
Transcribed Image Text:Req A and B Req C Prepare a reconciliation of MM's total income tax provision with its hypothetical income tax expense of 21 percent in both dollars and rates. (Amounts to be deducted should be indicated by a minus sign. Round your percentage answers to 2 decimal places. Do not round intermediate values.) Reconciliation of Effective Tax Rate Dollars Percent Provision at 21% % % % % % Income tax provision < Req A and B Req C>
Prepare a reconciliation of MM's total income tax provision with its hypothetical income tax expense of 21 percent in both
dollars and rates. (Amounts to be deducted should be indicated by a minus sign. Round your percentage answers to 2 decimal
places. Do not round intermediate values.)
Reconciliation of Effective Tax Rate
Dollars
Percent
Provision at 21%
%
%
%
%
Income tax provision
< Reg A and B
Reg C
Transcribed Image Text:Prepare a reconciliation of MM's total income tax provision with its hypothetical income tax expense of 21 percent in both dollars and rates. (Amounts to be deducted should be indicated by a minus sign. Round your percentage answers to 2 decimal places. Do not round intermediate values.) Reconciliation of Effective Tax Rate Dollars Percent Provision at 21% % % % % Income tax provision < Reg A and B Reg C
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