Question

Information for Hobson Corp. for the current year ($ in millions):

Income from continuing operations before tax $150
Loss on discontinued operation (pretax) 30
Temporary differences (all related to operating income):
Accrued warranty expense in excess of expense
included in operating income
10
Depreciation deducted on tax return in excess of
depreciation expense
25
Permanent differences (all related to operating income):
Nondeductible portion of entertainment expense 5
The applicable enacted tax rate for all periods is 40%.


How much tax expense on income from continuing operations would be reported in Hobson's income statement?

$56 million.

$60 million.

$62 million.

$50 million.

Answer 1

Answer:

62 million

Explanation:

A = Income from continuing operations before tax

B = Accrued warranty expense in excess of expense  included in operating income

C = Depreciation deducted on tax return in excess of  depreciation expense

D = Nondeductible portion of entertainment expense

E = Applicable enacted tax rate for all periods

Tax payable = (A - B - C + D) * E

Tax payable = (150 - 10 - 25 + 5) * 40% = 48 million

Deferred tax = (B + C) * E

Deferred tax = (10 + 25) * 40% = 35 * 40% = 14 million

Total tax expense = Tax payable + Deferred tax

= 48 million + 14 million = 62 million

Hope this helps!