For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included warranty expense of $7 and $20 in depreciation expense. Two million of warranty costs were incurred, and depreciation deductions in the tax return amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's taxable income?

Question

Business

Bodie

4 April, 15:23

For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included warranty expense of $7 and $20 in depreciation expense. Two million of warranty costs were incurred, and depreciation deductions in the tax return amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's taxable income?

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Macey Stafford · Answer 1

Taxable Income = pretax accounting income + warranty expense + depreciation expense - warranty costs were incurred - MACRS depreciation

Taxable Income = 80 + 7 + 20 - 2 - 35

Taxable Income = $ 70

Centipede's income tax payable = Taxable Income multiply tax rate

Centipede's income tax payable = 70 multiply 40%

Centipede's income tax payable = $ 28 Million

Note: I have assumed that tax rate is 40%