Diddle corp. prepared the following reconciliation of income per books with income per tax return for the year ended december 31, 2011:

book income before income taxes $1,200,000.
add temporary difference
construction contract revenue which will be reverse
in 2012 160,000.
deduct temporary difference
depreciation expense which will reverse in equal
amounts in each of the next four years (640,000.)
taxable income $720,000.
=
didde's effective income tax rate is 34% for 2011. what amount should didde report in its 2011 income statement as the current provision for income taxes?

a) $54,400.
b) $244,800.
c) $408,000.
d) $462,400.

The correct answer is b) $ 244,800.

Explanation:

Income tax is charged on taxable income. Book income is not relevant when calculating tax liability. However book income can be used as based when determining the tax liability. In other some deduction and addition as per relevant law in book income is require to be made in book income is order to arrive at taxable income.

However in question effective rate is given and book income is also there. Effective rate is rate is rate applied on book or accounting income in order to arrive at current income tax provision. For calculation please refer to below calculations.

Didde Corp. prepared the following reconciliation of income per books with income per tax return forthe year ended December 31, 2011:

Book income before income taxes                      $ 1,200,000

Add temporary difference

Construction contract revenue which

will reverse in 2012                                                $ 160,000

Deduct temporary difference depreciation

expense which will reverse in equal amounts

in each of the next four years                                $ (640,000)

Taxable income                                                       $ 720,000

Income tax Provision = (1,200,000 * 34)                 $ 408,000

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