Problem 77

1. Compute MM's current income tax expense or benefit for 2013

Income before income taxes
Interest from municipal bonds
Nondeductible M&E
DPAD
Nondeductible fines
Book equivalent of taxable income

Net change in cumulative TTD

Net change in cumulative DTD
Net change cumulative TD
Taxable income
x 34%
Current tax expense

15,000,000
(50,000)
20,000
(250,000)
5,000
14,725,000
(1,000,000)
390,000
(610,000)

$
$

14,115,000
0.34
4,799,100

2. Compute MM's deferred income tax expense or benefit for 2013

Ending balance in TTD
Beginning balance in TTD
Increase in deferred tax liability

Ending balance in DTD

Beginning balance in TTD
Increase in deferred tax asset

Deferred tax expense

Deferred tax benefit
Net deferred tax expense

Tax provision
Current income tax expense
Deferred income tax expense
Total income tax provision

$
$

(3,060,000)
(2,720,000)
(340,000)
1,353,200
1,220,600
132,600
340,000
(132,600)
207,400

4,799,100
207,400
5,006,500

Check
Book equivalent of taxable income
x 34%
Total income tax provision

$
$

14,725,000
0.34
5,006,500

3. Prepare a reconciliation of MM's total income tax provision with its hypothetical income tax expense
Reconciliation of Effective Tax Rate
Provision at 34% [$15,000,000 x 34%]
Tax exempt interest ($50,000 x 34%)
Nondeductible M&E ($20,000 x 34%)
DPAD ($250,000 x 34%)
Nondeductible fines ($5,000 x 34%)
Provision

Dollars
$

5,100,000
(17,000)
6,800
(85,000)
1,700
5,006,500

Percent
34.00%
-0.11%
0.05%
-0.57%
0.01%
33.38%

[$5,100,000 / $15,000,000]
[$17,000 / $15,000,000]
[$6,800 / $15,000,000]
[$85,000 / $15,000,000]
[$1,700 / $15,000,000]