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Costello Corporation reported pretax book income of $501,000. During the current year, the reserve for...

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Accounting

Costello Corporation reported pretax book income of $501,000. During the current year, the reserve for bad debts increased by $7,000. In addition, tax depreciation exceeded book depreciation by $41,000. Finally, Costello received $3,500 of tax-exempt life insurance proceeds from the death of one of its officers. Costello's deferred income tax expense or benefit would be:

  1. $7,140 net deferred tax expense.
  2. $7,140 net deferred tax benefit.
  3. $7,840 net deferred tax benefit.
  4. $7,875 net deferred tax expense.

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