Question

Carter Corporation's partial income statement after its first year of operations is as follows: Income before income taxes $3,750,000 Income tax expense Current $1,035,000 Deferred 90,000 1,125,000 Net income $2,625,000 Carter uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $2,400,000. No other differences existed between book income and taxable income except for the amount of depreciation. Assuming a 20% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year

Answer 1

Answer: $2,850,000

Explanation:

The amount was deducted for depreciation on the corporation's tax return for the current year will be calculated as:

Defered income tax = $90,000

Tax rate = 20%

We will calculate the difference between the book income and the taxable income which will be:

= $90000 ÷ 20%

= $90000 × 100/20

= $90000 × 5

= $450000

Therefore, the amount that was deducted for depreciation on the corporation's tax return for the current year will be:

= $2,400,000 + $450,000

= $2,850,000