Southern Atlantic Distributors began operations in January 2013 and purchased a
ID: 2421503 • Letter: S
Question
Southern Atlantic Distributors began operations in January 2013 and purchased a delivery truck for $20,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2013, 30% in 2014, and 20% in 2015. Pretax accounting income for 2013 was $200,000, which includes interest revenue of $30,000 from municipal bonds. The enacted tax rate is 20%.
Assuming no differences between accounting income and taxable income other than those described above:
Complete the following table given below and prepare the journal entry to record income taxes in 2013.(If no entry is required for an event, select "No journal entry required" in the first account field.)
Southern Atlantic Distributors began operations in January 2013 and purchased a delivery truck for $20,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2013, 30% in 2014, and 20% in 2015. Pretax accounting income for 2013 was $200,000, which includes interest revenue of $30,000 from municipal bonds. The enacted tax rate is 20%.
Explanation / Answer
1) Journal entry to record Income taxes:
Income tax Expense (Dr) 34,000
Deferred tax Liability (Cr) 1,000
Income tax payable (Cr) 33,000
Pre tax accounting income =, $200,000
Permanent difference:
Interest from Municipal Bonds (30,000)
Temporary difference:
Excess tax depreciation (5000)
Taxable Income 165,000
2) Net Income:
Pre-tax accounting income 200,000
Income Tax Expense 34,000
Net Income 166,000
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