1. Depreciation reported on the tax return exceeded depreciation reported on the
ID: 2420651 • Letter: 1
Question
1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $136,000. This difference will reverse in equal amounts of $34,000 over the years 2015–2018. 2. Interest received on municipal bonds was $14,200. 3. Rent collected in advance on January 1, 2014, totaled $69,000 for a 3-year period. Of this amount, $46,000 was reported as unearned at December 31, 2014, for book purposes. 4. The tax rates are 50% for 2014 and 45% for 2015 and subsequent years. 5. Income taxes of $321,200 are due per the tax return for 2014. 6. No deferred taxes existed at the beginning of 2014. Compute taxable income for 2014. Taxable income for 2014 $ SHOW LIST OF ACCOUNTS LINK TO TEXT Compute pretax financial income for 2014. Pretax financial income for 2014 $ SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2014 and 2015. Assume taxable income was $985,000 in 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 2014 2015 SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare the income tax expense section of the income statement for 2014, beginning with “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Remmers Corporation Income Statement (Partial) Year ended December 31, 2014 $ $ $
Explanation / Answer
1) Taxable income for 2014
Taxes due for 2014 is $ 321200 @ 50% of taxable income
Therefore, taxable income = 321200 / 50% = $ 642400
2) Pre Tax Financial Income for 2014
taxable income from above $ 642400
add: excess depreciation $ 136000
add: Interest on Municipal bond $ 14200
less: Unearned rent ($ 46000)
Therefore pre tax financial income for 2014 = $746600
3) Journal Entry
Deferred Tax Asset = 46000 * 45% = $ 20700
Deferred Tax Liability = 136000 * 45% = $ 61200
For 2014
Income Tax Expense (321200 + 61200 - 20700) DR $ 361700
Deferred tax asset DR $ 20700
Income Tax Payable CR $ 321200
Deferred Tax Laibility CR $ 61200
For 2015 Deferred Tax Laibility = ($136000/4 * 45%) =$ 15300
Deferred tax Asset = 46000/2 * 45% = $ 10350
Income Tax Expense a/c ($985000*45% -15300 +10350) DR $ 438300
Deferred tax liability DR $ 15300
Income Tax Payable (985000*45%) CR $ 443250
Deferred Tax Asset A/c CR $ 10350
4) Income Tax Expense Section for 2014
Income before taxes $ 746600
Income Tax Expense:
Current $321200
Deferred (61200 -20700) $ 40500 $ 361700
Net Income $ 384900
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