Easton Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income Estimated litigation expense Installment sales Taxable income $ 400,000 1,000,000 (800.000) $600.000 The estimated litigation expense of $1,000,000 will be deductible in 2021 when it is expected to be paid. The gross profit from the installment sales will be taxed in the amount of $400,000 in each of the next two years. The income tax rate is 20% for 2020, 25% for 2021, and 30% for 2022. Prepare the required journal entry at the end of 2020.

Easton Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income Estimated litigation expense Installment sales Taxable income $ 400,000 1,000,000 (800.000) $600.000 The estimated litigation expense of $1,000,000 will be deductible in 2021 when it is expected to be paid. The gross profit from the installment sales will be taxed in the amount of $400,000 in each of the next two years. The income tax rate is 20% for 2020, 25% for 2021, and 30% for 2022. Prepare the required journal entry at the end of 2020.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter18: Accounting For Income Taxes

Section: Chapter Questions

Problem 9MC: Brooks Company reported a prior period adjustment of 512,000 in pretax financial "income" and...

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Comprehensive Colt Company reports pretax financial income of 143,000 in 2019. In addition to pretax income from continuing operations (of which revenues are 295,000), the following items are included in this pretax income: Colts taxable income totals 93,000 in 2019. The difference between the pretax financial income and the taxable income is due to the excess of tax depreciation over financial depreciation on assets used in continuing operations. At the beginning of 2019, Colt had a retained earnings balance of 310.000 and a deferred tax liability of 8,100. During 2019, Colt declared and paid dividends of 48,000. It is subject to tax rates of 15% on the first 50,000 of income and 30% on income in excess of 50,000. Based on proper interperiod tax allocation procedures, Colt has determined that its 2019 ending deferred tax liability is 14,100. Required: 1. Prepare a schedule for Colt to allocate the total 2019 income tax expense to the various components of pretax income. 2. Prepare Colts income tax journal entry at the end of 2019. 3. Prepare Colts 2019 income statement. 4. Prepare Colts 2019 statement of retained earnings. 5. Show the related income tax disclosures on Colts December 31, 2019, balance sheet.
Interperiod Tax Allocation Peterson Company has computed its pretax financial income to be 66,000 in 2019 after including the effects of the appropriate items from the following information: Petersons accountant has prepared the following schedule showing the future taxable and deductible amounts at the end of 2019 for its three temporary differences: At the beginning of 2019, Peterson had a deferred tax liability of 12,540 related to the depreciation difference and 4,710 related to the accrual-basis sales difference. In addition, it had a deferred tax asset of 14,850 related to the warranty difference. The current tax rate is 30%, and no change in the tax rate has been enacted for future years. Required: 1. Compute Petersons taxable income for 2019. 2. Prepare Petersons income tax journal entry for 2019 (assume no valuation allowance is necessary). 3. Next Level Identify the permanent differences in Items 1 through and explain why you did or did not account for them as deferred tax items in Requirement 2.
Prior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of 24,500 for financial reporting purposes and of 20,000 for tax purposes at the end of 2019. In addition, Shadrach recognized a 3,500 estimated liability for legal expenses in the financial statements during 2019; it expects to pay this liability (and deduct it for tax purposes) in 2023. The current tax rate is 30%, no change in the tax rate has been enacted, and the company expects to be profitable in future years. What is the amount of the net deferred tax liability at the end of 2019? a. 300 b. 450 c. 1,050 d. 1,350
Brooks Company reported a prior period adjustment of 512,000 in pretax financial "income" and taxable income for 2020. The prior period adjustment was the result of an error in calculating bad debt expense for 2019. The current tax rate is 30%, and no change in the tax rate has been enacted for future years. When the company applies intraperiod income tax allocation, the prior period adjustment will be shown on the: a. income statement at 12,000 b. income statement at 8,400 (net of 3,600 income taxes) c. retained earnings statement at 12,000 d. retained earnings statement at 8,400 (net of 3,600 income taxes)
Incomc Taxes Then Company has been in operation for several years. It has both a deductible and a taxable temporary difference. At the beginning of 2019, its deferred tax asset was 690, and its deferred tax liability was 750. The company expects its lutine deductible amount to be deductible in 2020 and its Inline taxable amount to 1 taxable in 2021. In 2018, Congress enacted income tax rates for future years as follows: 2019, 30%; 2020, 34%; and 2021, 35%. At the end of 2019, Then reported income taxes payable of 25,800, an increase in its deferred tax liability of 300, and an ending balance in its deferred tax asset of 860. Thun has prepared the following schedule of items related to its income taxes for 2019. Required: Fill in the blanks in the preceding schedule. Show your calculations.
Temporary and Permanent Differences Lin has just completed its first year of operations and has a number of differences between its pretax financial income and taxable income. The differences at the end of 2019 are as follows: a. Lin recorded 7,000 of interest revenue on municipal bonds during 2019. b. 15,000 of accrual-basis sales were recognized in income during 2019. They are expected to be received in cash during January 2020. c. Depreciation on machinery totaled 28,000 using straight-line depreciation for financial statements. Lins tax accountant recorded 36,000 of depreciation on the companys tax return. d. Lin was fined 3,000 for violating certain labor laws during 2019. Lin paid the fine during 2019 and agreed to ensure future violations would not occur. e. Bryant Corporation has agreed to rent space from Lin in 2020. In December 2019, Lin received 7,500 from Bryant in advance for rent. f. For 2019, Lin reported 9,500 of warranty expense on its income statement. The companys warranty liability at the end of 2019 was 6,250. Lin expects additional warranty costs to be paid during 2020. Required: 1. For each item, determine if it results in a temporary or permanent difference. If the item results in a temporary difference, determine if it results in a deferred tax asset or deferred tax liability. 2. For each item, determine if it initially results in pretax financial income being greater than or less than taxable income. 3. Next Level Discuss why permanent differences do not impact future periods taxable income and how these differences affect tax rates.
Cullumber Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $1560000 Estimated litigation expense 3600000 Installment sales (2880000) Taxable income $2280000 The estimated litigation expense of $3600000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1440000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1440000 current and $1440000 noncurrent. The income tax rate is 20% for all years.The income tax expense is $456000. $1440000. $720000. $312000.
Sarsuela Co. at the end of 2022, its first year of operation, prepared reconciliation between pretax financial income and taxable income as follows: Pretax financial income P400,000 Estimated litigation expense 1,000,000 Installment sales (800,000) Taxable income P600,000 The estimated litigation expenses of P1,000,000 will be deductible in 2023 when it is expected to be paid. The gross profit from installment sales will be realized in the amount of P500,000 and P300,000 each of the next two years. The income tax rate is 30% in current year and 32% in 2023 and 33% in 2024 were enacted for future years. TRUE OR FALSE Statement 1: The net income after tax for the period ending December 31, 2022 is P660,000. Statement 2: Total income tax expense for the period ending December 31, 2022 is P120,000
Sandhill Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $1080000 Estimated litigation expense 2800000 Installment sales (2240000) Taxable income $1640000 The estimated litigation expense of $2800000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1120000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1120000 current and $1120000 noncurrent. The income tax rate is 20% for all years.The deferred tax asset to be recognized is
Pharoah Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $1320000 Estimated litigation expense 3200000 Installment sales (2560000) Taxable income $1960000 The estimated litigation expense of $3200000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1280000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1280000 current and $1280000 noncurrent. The income tax rate is 20% for all years.The deferred tax asset to be recognized is $128000 current. $640000 noncurrent. $0. $128000 noncurrent.
Blossom Co. at the end of 2024, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $1500000 Estimated litigation expense 3500000 (2820000) Installment sales Taxable income $2180000 The estimated litigation expense of $3500000 will be deductible in 2026 when it is expected to be paid. Gross profit of $1410000 from the installment sales will be realized in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1410000 current and $1410000 noncurrent. The income tax rate is 20% for all years. The deferred tax asset to be recognized at the end of 2024 is $0. $136000. $1750000. $700000.
Crane Co. at the end of 2020, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $840000 Estimated litigation expense 2400000 Installment sales (1920000) Taxable income $1320000 The estimated litigation expense of $2400000 will be deductible in 2022 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $960000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $960000 current and $960000 noncurrent. The income tax rate is 20% for all years.The income tax expense is $168000. $960000. $480000. $264000.