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A $120 temporary difference existed for the Orland Company, caused by accelerated tax depreciation on 12/31/17. The difference will reverse evenly over the next three years. Tax Rates are 30% in 2017, 25% in 2018, and 20% in 2019 and beyond. Pretax book income in 2017 is $1,000. What is 12/31/17 Income Tax Payable?

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Answer: $252

Explanation:

The temporary tax difference exists because the company was depreciating assets at a rate different from that of the Tax authority. As such, the difference will reverse over 3 years but the difference will need to be accounted for in current 2017 income to ascertain how much is to be paid as tax.

Taxable Income = 1,000 - 120

= $840

Income Tax Payable = 840 * 30%

= $252

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