Potter, Inc. reported pretax book income of $5,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by $300,000. Potter sold a fixed asset and reported book gain of $60,000 and tax gain of $80,000. Finally, the company received $50,000 of tax-exempt municipal bond interest. Compute Potter's deferred income tax expense or benefit.
What will be an ideal response?
$37,800 deferred income tax expense.
| Increase in bad debt reserve | $ | 100,000 | |
| Excess tax depreciation | (300,000 | ) | |
| Excess tax gain | 20,000 | ||
| Net increase in favorable temporary differences | $ | (180,000 | ) |
| × 21% | × 21 | % | |
| Net increase in deferred income tax liability | $ | (37,800 | ) |
| ? | |||
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