Zurich Company reports pretax financial income of $70,000 for 2020. The following items cause taxable income to be different than pretax financial income.
1.
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Depreciation on the tax return is greater than depreciation on the income statement by $16,000.
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2.
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Rent collected on the tax return is greater than rent recognized on the income statement by $22,000.
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3.
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Fines for pollution appear as an expense of $11,000 on the income statement.
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Zurich’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2020.Question: For number 1, why do you substract it? The wording of number 1 gets me confused. If this was a test question I would have added it.please give a very detailed explanation. Thank you!