Question

Pretax financial income for Lake Inc. is \(300,000, and its taxable income is \)100,000 for 2018. Its only temporary difference at the end of the period relates to a $70,000 difference due to excess depreciation for tax purposes. If the tax rate is 40% for all periods, compute the amount of income tax expense to report in 2018. No deferred income taxes existed at the beginning of the year.

Short answer

Annual depreciation is the amount of depreciation levied on the value of an assetduring a year. The value keeps on diminishing up to itsscrap value or resale value.

Step-by-step solution

Computation of deferred tax expense

Particulars	Amount
Taxable income	$100,000
Multiply: Tax rate	40%
Income tax payable	$40,000

Calculation of income tax expense

Particulars	Amount
Future taxable amount	$70,000
Multiply: Tax rate	40%
Deferred tax liability	$28,000
Add: Income tax payable	$40,000
Income tax expense	$68,000