Tax Provision HW

1. Prepare a simple tax provision and the journal entries to calculate the current and the deferred tax provision (benefit) using the following data:
a.       ABC, Inc. reported pre-tax book income of $1,000,000 for 2021.
b.      Included in the pre-tax book income were meals of $100,000 of which 50% are disallowed under US tax rules.
c.       Book depreciation included in pre-tax income was $100,000 and under tax rules, tax depreciation is $150,000.
d.      Assume a tax rate of 21%.

2.       Using the Excel summary from Exhibit 5-8 (PCC Book-Tax Reconciliation Template), calculate the following (assume a tax rate of 21% and start with Pre-Tax Book Income):
a.       Current tax provision (benefit) and the journal entry.
b.      Deferred tax provision (benefit) and the journal entry
c.       Total tax provision (benefit)
d.      Effective Tax Rate (“ETR”)

3.       Using the Excel summary from Exhibit 5-8 (PCC Book-Tax Reconciliation Template), replace the Pre-tax book income of $5,131,000 with a pre-tax book LOSS of $5,000,000 (assume all book/tax differences are the same) calculate the following (assume a tax rate of 21%):
a.       Current tax provision (benefit) and the journal entry
b.      Deferred tax provision (benefit) and the journal entry
c.       Total tax provision (benefit)
d.      Effective Tax Rate (“ETR”)

4.        Company XYZ Corp misclassified the allowance for doubtful accounts in the amount of $100,000 as a permanent difference. Prepare the following:
a.       Original tax entry treating the bad debt as a permanent item
b.      Adjusting journal entry
c.       Corrected tax entry treating the bad debt as a temporary item
d.      Assume tax rate of 21%.
e.      What controls could XYZ Corp put in place so errors like the above can be detected?