In 2024, its first year of operations, Cunningham Company reports $75,000 of income before taxes. Cunningham computes its taxable income after considering the following issues: 1. Cunningham sells various products with an assurance product warranty. Based on industry averages, Cunningham estimates that costs associated with the 2-year warranty will be about $22,000. In 2024, Cunningham incurs $11,000 of costs for warranty claims. 2. Finding itself with surplus cash, Cunningham invests $100,000 in tax-free municipal bonds and earns $8,000 interest in 2024. 3. Cunningham collected $40,000 in November 2024 from a business that wants to rent an unused portion of its warehouse. The $40,000 covers the rental for the two years 2025-2026, and therefore no rental revenue has been recognized for 2024. However, Cunningham must pay taxes on the entire amount collected in 2024. 4. An accelerated depreciation method is used for tax purposes. In 2024, Cunningham reports $20,000 more depreciation expense for tax purposes than it shows in the accounting records. The excess depreciation is expected to reverse in 2026. The enacted tax rate in 2024 is 21%. Required: a. Calculate taxable income for 2024. b. Prepare the journal entry necessary to record income taxes at the end of 2024. C. How would any deferred tax amounts be reported on a classified balance sheet?
In 2024, its first year of operations, Cunningham Company reports $75,000 of income before taxes. Cunningham computes its taxable income after considering the following issues: 1. Cunningham sells various products with an assurance product warranty. Based on industry averages, Cunningham estimates that costs associated with the 2-year warranty will be about $22,000. In 2024, Cunningham incurs $11,000 of costs for warranty claims. 2. Finding itself with surplus cash, Cunningham invests $100,000 in tax-free municipal bonds and earns $8,000 interest in 2024. 3. Cunningham collected $40,000 in November 2024 from a business that wants to rent an unused portion of its warehouse. The $40,000 covers the rental for the two years 2025-2026, and therefore no rental revenue has been recognized for 2024. However, Cunningham must pay taxes on the entire amount collected in 2024. 4. An accelerated depreciation method is used for tax purposes. In 2024, Cunningham reports $20,000 more depreciation expense for tax purposes than it shows in the accounting records. The excess depreciation is expected to reverse in 2026. The enacted tax rate in 2024 is 21%. Required: a. Calculate taxable income for 2024. b. Prepare the journal entry necessary to record income taxes at the end of 2024. C. How would any deferred tax amounts be reported on a classified balance sheet?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:In 2024, its first year of operations, Cunningham Company reports $75,000 of income before taxes. Cunningham computes its taxable income after
considering the following issues:
1. Cunningham sells various products with an assurance product warranty. Based on industry averages, Cunningham estimates that costs associated
with the 2-year warranty will be about $22,000. In 2024, Cunningham incurs $11,000 of costs for warranty claims.
2. Finding itself with surplus cash, Cunningham invests $100,000 in tax-free municipal bonds and earns $8,000 interest in 2024.
3. Cunningham collected $40,000 in November 2024 from a business that wants to rent an unused portion of its warehouse. The $40,000 covers
the rental for the two years 2025-2026, and therefore no rental revenue has been recognized for 2024. However, Cunningham must pay taxes
on the entire amount collected in 2024.
An accelerated depreciation method is used for tax purposes. In 2024, Cunningham reports $20,000 more depreciation expense for tax
purposes than it shows in the accounting records. The excess depreciation is expected to reverse in 2026.
The enacted tax rate in 2024 is 21%.
Required:
a.
Calculate taxable income for 2024.
b.
Prepare the journal entry necessary to record income taxes at the end of 2024.
C.
How would any deferred tax amounts be reported on a classified balance sheet?
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