AMEehle ContiS Tak Problem Texas Corporation provides you with the following inf

Question

AMEehle ContiS Tak Problem Texas Corporation provides you with the following information at the end of its first year of operations. DATE: 9/2511& 1. Life insurance expense on officers was $8,300 2. Equipment was acquired in early January for $323,000, Straighti-line depreciation over a year life is used, with no salvage value. For tax purposes, Marin used a 30% rate to calculate depreciation 3. Interest revenue on State of New York bonds totaled $4,000 INSTRUCTIONS: (a) Prepare a reconciliation of Financial Income to Tasable Income. Pre-tax finanscial Income is $100,000 and the tax rate is 21%. Oo,Doo 4 o Record the journal entry for income tax expense in good form (b) Clearly identify the amount of deferred tax expense. Clearly identify the amount of current tax expense.

Explanation / Answer

Taxable Income For IRS Financial income Pretax Financial Income 100000 Add:Life insurance expense on officers (not an allowable expense as per IRS) 8300 Less: Addl. Depn.allowable for tax purposes(323000*30%)-(323000/5) -32300 Less:Interest revenue on State of New York bonds--(Tax -free income) -4000 Taxable income for tax IRS 72000 100000 Tax at 21% 15120 21000 Add/(Less) : Permanent differences with IRS : Tax saved on Life insurance expense as per books(8300*21%) 1743 Tax incurred on State of New York Bonds int. revenue (4000*21%) -840 so, Net tax expense reported 21903 Journal entry: Income Tax expense(Current) 21903 Income tax payable (to tax authorities) 15120 Deferred Tax liability (100000+8300-4000-72000)*21% 6783

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