Mozart Inc.'s taxable income for 2005 of $98,000 will be taxed at the 40% corporate tax rate. For tax purposes, its depreciation expense exceeded the depreciation used for financial reporting purposes by $27,000. Mozart has $45,000 of purchased goodwill on its books; during 2005 Mozart determined that the goodwill had suffered a $3,000 impairment of value for financial reporting purposes. None of the goodwill impairment is deductible for tax purposes. Mozart purchased a 3-year corporate liability insurance policy on July 1, 2005 for $36,000 cash. The entire premium was deducted for tax purposes in 2005.
1. Determine Mozart Inc.'s pre tax income for 2005.
2. Determine the change in Mozart Inc.'s deferred tax amounts for 2005.
3. Calculate tax expense for Mozart Inc. for 2005.
This solution provides computations in Excel to assist with the problems below.