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Cantlay, Inc., earns pretax book net income of $800,000 in 2019. Cantlay acquires a depreciable asset that year, and first-year tax depreciation exceeds book depreciation by $80,000. Cantlay reported no other temporary or permanent book-tax differences. The pertinent U.S. Federal corporate income tax rate is 21% and Cantlay earns an after-tax rate of return on capital of 8%. What is Cantlay’s current income tax expense for the year?

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Parrain

Answer:  $151,200

Explanation:

The Tax depreciation exceeds book depreciation so this excess will have to be removed from the income before tax is calculated as it is tax deductible.

Current Income Tax = (Pretax book income - Excess tax depreciation) * Income tax rate

= (800,000 - 80,000) * 21%

= $151,200

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