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Question

The enacted tax rates are 30% for 2011 and 2012; and 40% for subsequent years.

K. Shuman purchased a landscape maintenance firm on 1/2/2011 and renamed the firm Shuman Enterprises. Information regarding the firm for the first two years of operation is shown below:
a. Pretax GAAP income was $100,000 in 2011 and $150,000 in 2012.
b. Heavy equipment acquired in the purchase was valued at $120,000. The equipment had a life of 4 years and no salvage value. Depreciation for tax purposes was $48,000 in 2011 and $36,000 in 2012. Depreciation for GAAP purposes was $30,000 in each year.
c. In 2012, Pretax GAAP income included $12,500 of interest on State of Indiana Bonds. This interest is not taxable for U.S. federal purposes.
d. During 2011, $40,000 was collected in advance for landscape maintenance to be performed in 2012. This amount was included in 2011 taxable income but was not included in GAAP income until 2012. In 2012, $25,000 was collected in advanced for work to be performed in 2013. This amount was recognized as income for tax purposes in 2012 but will not be recognized as income for GAAP purposes until 2013.
e. The enacted tax rate for 2011 was 30%. The newly enacted tax rate for 2012 and subsequent years is 38%.
f. At December 31, 2011, the Deferred Tax Asset account had a $12,000 debit balance, and the Deferred Tax Liability account had a $5,400 credit balance.
Required:
1. Compute Shuman's GAAP income tax expense for the year ended December 31, 2012.

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