Black, Inc Black, Inc Black, Inc

Essay

Black, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the
year. Assume a 21% corporate tax rate and no valuation allowance. $\begin{array}{lcc}&\text { Tax Debit/(Credit)} &\text {Book Debit/(Credit) }\\\text { Assets }\\ \text { Cash } & \$ 300 & 300 \\\text { Accounts receivable } & 5,000 & 5,000 \\\text { Buildings } & 300,000 & 300,000 \\ \text { Accumulated depreciation } & (150,000) & (80,000) \\ \text { Furniture \& fixtures } & 40,000 & 40,000 \\\text { Accumulated depreciation } & (21,000) & (15,000) \\ \text { Total Assets } & \$ 174,300 & \$ 250,300 \\\end{array}$

$\begin{array}{l}\text { Liabilities }\\\begin{array}{lrr}\text { Accrued litigation expense } & \$-0- & (\$ 27,000) \\\text { Note payable } & \underline{(116,000)}& \underline{(116,000)} \\\text { Total liabilities } & \underline{(\$ 116,000)} & (\$143,000) \\\end{array}\end{array}$

$\begin{array}{lcc} \text { Paid-in capital } & (\$ 1,000) & (\$ 1,000) \\ \text { Retained earnings } & (57,300) & (106,300) \\ \begin{array}{l}\text { Total liabilities and } \\\text { stockholders' equity }\end{array} & (\$ 174,300) & (\$ 250,300) \\\end{array}$ Black, Inc.'s, gross deferred tax assets and liabilities at the beginning of Black's year are listed below. $\begin{array}{lc}&\text { Beginning of Year }\\\text { Accrued litigation expense } & \underline{\$ 20,000} \\\text { Subtotal } & \$ 20,000 \\\text { Applicable tax rate } & \underline{\times 21 \%} \\\text { Gross deferred tax asset } & \$ 4,200 \\\\\text { Building - } \\\quad \text { Accumulated depreciation } & (\$ 61,000) \\\text { Furniture \& fixtures - } & \\\quad \text { Accumulated depreciation } & \underline{(3,000)} \\\text { Subtotal } & (\$ 64,000) \\\text { Applicable tax rate } & \times 21 \% \\\text { Gross deferred tax liability } & \underline{(\$ 13,440)} \\\end{array}$ Black, Inc.'s, book income before tax is $6,000. Black records two permanent book-tax differences.
It earned $250 in tax-exempt municipal bond interest and incurred $500 in nondeductible business meals expense. Determine the change in Black's deferred tax liabilities for the current year.