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Chapter 19: Question 9BE (page 1094)

Shetland Inc. had pretax financial income of \(154,000 in 2017. Included in the computation of that amount is insurance expense of \)4,000 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $10,000. Prepare Shetland鈥檚 journal entry to record 2017 taxes, assuming a tax rate of 45%.

Short Answer

Expert verified

Depreciation is a term used in accountswhere the value of fixed assets the organization owns decreases because of its usage. It is charged as an expense and is deductedfrom theasset's actual value.

Step by step solution

01

Computation of income tax payable and deferred tax liability

Incometaxpayable=(FinancialIncome+Insuranceexpence-Accountingdepreciation)脳Taxrate=($154,000+$4,000-$10,000)脳45%=$148,000脳45%=$66,600

DeferredTaxliability=Accountingdepreciation脳Taxrate=$10,000脳45%=$4,500

02

Journal entry

Shetland Inc.

Journal Entry

Date

Particulars

Debit

Credit

2017

Income tax expense

$71,100

Income tax payable

$66,600

Deferred tax liability

$4,500

(To record the income tax expense)

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Most popular questions from this chapter

The following facts relate to Krung Thep Corporation. 1. Deferred tax liability, January 1, 2017, \(40,000. 2. Deferred tax asset, January 1, 2017, \)0. 3. Taxable income for 2017, \(95,000. 4. Pretax financial income for 2017, \)200,000. 5. Cumulative temporary difference at December 31, 2017, giving rise to future taxable amounts, \(240,000. 6. Cumulative temporary difference at December 31, 2017, giving rise to future deductible amounts, \)35,000. 7. Tax rate for all years, 40%. 8. The company is expected to operate profitably in the future. Instructions (a) Compute income taxes payable for 2017. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (c) Prepare the income tax expense section of the income statement for 2017, beginning with the line 鈥淚ncome before income taxes.鈥�

The following information has been obtained for Gocker Corporation.

1. Prior to 2017, taxable income and pretax financial income were identical.

2. Pretax financial income is \(1,700,000 in 2017 and \)1,400,000 in 2018.

3. On January 1, 2017, equipment costing \(1,200,000 is purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Hint: Use the half-year convention for tax purposes, as discussed in Appendix 11A.)

4. Interest of \)60,000 was earned on tax-exempt municipal obligations in 2018.

5. Included in 2018 pretax financial income is a gain on discontinued operations of $200,000, which is fully taxable.

6. The tax rate is 35% for all periods.

7. Taxable income is expected in all future years.

Instructions (a) Compute taxable income and income taxes payable for 2018. (b) Prepare the journal entry to record 2018 income tax expense, income taxes payable, and deferred taxes. (c) Prepare the bottom portion of Gocker鈥檚 2018 income statement, beginning with 鈥淚ncome from continuing operations before income taxes.鈥� (d) Indicate how deferred income taxes should be presented on the December 31, 2018, balance sheet.

At December 31, 2017, Hillyard Corporation has a deferred tax asset of \(200,000. After a careful review of all available evidence, it is determined that it is more likely than not that \)60,000 of this deferred tax asset will not be realized. Prepare the necessary journal entry.

Bandung Corporation began 2017 with a \(92,000 balance in the Deferred Tax Liability account. At the end of 2017, the related cumulative temporary difference amounts to \)350,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2017 is \(525,000, the tax rate for all years is 40%, and taxable income for 2017 is \)405,000. Instructions (a) Compute income taxes payable for 2017. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (c) Prepare the income tax expense section of the income statement for 2017 beginning with the line 鈥淚ncome before income taxes.鈥�

Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes. Instructions For each item below, indicate whether it involves: (1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset. (2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability. (3) A permanent difference. Use the appropriate number to indicate your answer for each. (a) ______ The MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets. (b) ______ A landlord collects some rents in advance. Rents received are taxable in the period when they are received. (c) ______ Expenses are incurred in obtaining tax-exempt income. (d) ______ Costs of guarantees and warranties are estimated and accrued for financial reporting purposes. (e) ______ Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes. (f) ______ For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes, but the assets鈥� lives are shorter for tax purposes. (g) ______ Interest is received on an investment in tax-exempt municipal obligations. (h) ______ Proceeds are received from a life insurance company because of the death of a key officer. (The company carries a policy on key officers.) (i) ______ The tax return reports a deduction for 80% of the dividends received from U.S. corporations. The cost method is used in accounting for the related investments for financial reporting purposes. (j) ______ Estimated losses on pending lawsuits and claims are accrued for books. These losses are tax deductible in the period(s) when the related liabilities are settled. (k) ______ Expenses on stock options are accrued for financial reporting purposes.
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