Pine Corp.’s books showed pretax income of $800,000 for
the year ended December 31, year 1. In the computation of federal
income taxes, the following data were considered:

Gain on an involuntary conversion $350,000

(Pine has elected to replace the property within
the statutory period using total proceeds.)
Depreciation deducted for the tax purposes in

excess of depreciation deducted for book purposes 50,000

Federal estimated tax payments, year 1 70,000

Enacted federal tax rates, year 1 30%

What amount should Pine report as its current federal income tax
liability on its December 31, year 1 balance sheet?

(a) The current federal income tax liability is based on
taxable income, which is computed in the “book to tax reconciliation”
below.
Accounting income $ 800,000
Nontaxable gain (350,000)
Excess tax depreciation (50,000)
Taxable income $ 400,000
The gain on involuntary conversion was included in accounting
income but is deferred for tax purposes. Depreciation deducted
for tax purposes in excess of book depreciation also causes taxable
income to be less than accounting income. Taxes payable
before considering estimated tax payments is $120,000
($400,000 × 30%). Since tax payments of $70,000 have already
been made, the 12/31/Y1 current federal income tax liability is
$50,000 ($120,000 – $70,000).