Viking Company reported in the income statement for the year ended December 31, 2018 pretax income of P1,000,000.

             Tax return          Accounting record

Rent income      70,000  120,000

Depreciation     280,000               220,000

Premiums on officers’ life insurance                     90,000

Income tax rate                               30%

 What is the total tax expense?

a. 300,000

b.   273,000

c.    267,000

d.   327,000

Answer:

d .

Step-by-Step explanation

Calculation of the tax expense.

Given the following information:

Pretax income=1,000,000

Premiums on officers' life insurance=300,000

Then,

Total expense=(income tax expense+Premiums on officers' life insurance tax expense)

    =(0.3*1000,000)+(0.3*90,000)

    =300,000+27,000

    =327,000.

Total tax expense is 327,000.

Reference

Deng, J., Gaertner, F. B., Lynch, D. P., & Steele, L. (2020). Proprietary Costs and the Reporting of Segment-level Tax Expense. Journal of the American Taxation Association.

Fan, Q., Guenther, D. A., & Wu, K. (2020). Fixed and Variable Tax Expense and the Cost of Equity Capital. Available at SSRN 3575256.