| INCOME TAXES AND CORRECTION OF AN ERROR | NOTE
7 - INCOME TAXES AND CORRECTION OF AN ERROR The
following table shows a reconciliation of income tax expense between the amount reported and the amount under the statutory tax
rates in effect for the nine months ended September 30, 2018 and 2017, respectively:
September
30, September
30,
Income
tax expense from statutory rate $ 549,000 $ 205,000
Effect of change
in tax status — 107,100
Other items (6,112 ) (8,300 )
Effect
of permanent timing differences 4,000 57,600
Income
tax expense, as reported $ 546,888 $ 361,400 The
current income tax provision represents the estimated amount of income taxes paid or payable for the year, as well as changes
in estimates from prior years. The deferred income tax provision represents the change in deferred tax liabilities and assets.
The following table presents the significant components of the provision for income taxes:
September
30, September
30,
Current
Federal $ 51,400 $ 35,400
State 17,900 7,500
Total
current provision $ 69,300 $ 42,900
Deferred
Federal $ 352,388 $ 236,000
State 125,200 82,500
Total
deferred provision $ 477,588 $ 318,500
Income
tax expense $ 546,888 $ 361,400 On
December 22, 2017, the Tax Act was signed into law and significantly reformed the Internal Revenue Code of 1986, as amended.
The Tax Act will significantly impact the Company by reducing the federal corporate tax rate from 35% to 21%, effective January 1,
2018, and by allowing expensing of certain capital expenditures. However, the Tax Act limits the deductibility of meals, entertainment
expenses and certain executive compensation, imposes limitations on the deductibility of interest expense and eliminates the domestic
production activities deduction. Shortly
after the Tax Act was enacted, the Securities and Exchange Commission issued guidance under Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) to address the application of GAAP
and direct taxpayers to consider the impact of the Act as “provisional” when a registrant does not have the necessary
information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for the change
in tax law. In accordance with SAB 118, the Company has recognized the provisional tax impacts, outlined above, related to
the re-measurement of its net deferred tax liability. The ultimate impact may differ from the provisional amounts, possibly materially,
due to, among other things, the significant complexity of the Tax Act, anticipated additional regulatory guidance or related interpretations
that may be issued by the Internal Revenue Service (the “IRS”), changes in accounting standards, legislative actions,
future actions by states within the U.S. and changes in estimate, analysis, interpretations and assumptions the Company has made. Deferred
income taxes are recorded based upon temporary differences between the financial statement and tax bases of assets and liabilities
and available net operating loss and tax credit carryforwards. Temporary differences and carryforwards that comprised deferred
income tax assets and liabilities were as follows:
September
30, September
30,
Deferred income
tax assets
Investments $ (51,900 ) $ (51,900 )
Deferred income
tax liabilities
Depreciation 286,600 287,200
Cash
basis timing adjustment 647,700 83,200
934,400 370,400
Net
deferred income tax liability $ 882,400 $ 318,500 The
Company’s deferred income tax assets and liabilities are subject to adjustment in future periods based on the Company’s
ongoing evaluations of such deferred assets and liabilities and new information available to the Company. Valuation
allowances are recognized on deferred tax assets if the Company believes it is more likely than not that some or all of the deferred
tax assets will not be realized. The Company believes the majority of the deferred tax assets will be realized due to the reversal
of certain significant temporary differences and anticipated future taxable income from operations and, accordingly, has not recorded
an allowance. Correction
of an Error In
the period ended September 30, 2017, the Company did not properly record its expected current and deferred income tax liabilities
for its expected income tax expense. The table below shows the correction of this error:
As
originally Correction As
Amended
Current
income taxes payable $ 0 $ 42,900 $ 42,900
Total
current liabilities $ 1,097,475 $ 42,900 $ 1,140,375
Deferred
income taxes payable $ 0 $ 318,500 $ 318,500
Total
liabilities $ 1,619,129 $ 318,500 $ 1,937,629
Retained
earnings (Accumulated Deficit) $ (71,209 ) $ (361,400 ) $ (432,609 )
Total
liabilities and stockholders’ equity $ 1,683,038 $ — $ 1,683,038 In
the period ended September 30, 2017, the Company did not properly record its expected current and deferred income tax liabilities
for its expected income tax expense. The table below shows the correction of this error:
As
originally Correction As
Amended
Income
tax expense $ 0 $ 361,400 $ 361,400
Net Income $ 512,435 $ (361,400 ) $ 151,035
Earnings per share $ 0.02 $ (0.01 ) $ 0.01 |
