Income Tax Expense Calculation for Ajax, Inc. in Year 2

What amount should Ajax report as income tax expense-current portion in its Year 2 income statement?

Based on the given data, what factors contributed to the difference between taxable income and pretax financial statement income for Ajax, Inc.?

Income Tax Expense-Current Portion Calculation:

The amount that Ajax, Inc. should report as income tax expense-current portion in its Year 2 income statement is $150,000.

Ajax, Inc. reported taxable income of $400,000 in Year 2, but its pretax financial statement income was $300,000. The difference resulted from $60,000 of nondeductible premiums on Ajax's officers' life insurance and $40,000 of rental income received in advance, which is taxable when received. Ajax's effective tax rate is 30%.

To calculate the income tax expense-current portion, we need to consider the total taxable income for Ajax, Inc. This includes the reported taxable income, non-deductible insurance premiums, and rental income received in advance.

The total taxable income for Ajax, Inc. in Year 2 is $500,000 ($400,000 + $60,000 + $40,000). By applying the effective tax rate of 30% to this total taxable income, the income tax expense-current portion amounts to $150,000 ($500,000 * 30%).

Therefore, Ajax should report $150,000 as income tax expense-current portion on its Year 2 income statement.