answer The following differences enter into the reconciliation of financial inco

ID: 2451626 • Letter: A

Question

answer The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the year ended December 31, 2014, its first year of operations. The enacted income tax rate is 30% for all years. The financial statements reported pre-tax accounting income of $700,000. The following differences between taxable and financial income exist Excess tax depreciation will reverse equally over a four-year period, 2015-2018. Rent revenue will be recognized equally over the next three-year period, 2015-2017. Interest revenue from the New York bonds is expected to be $20,000 each year until their maturity at the end of 2018. Determine taxable income in 2014. Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2014.

Explanation / Answer

Pre tax Accounting income - $700000

Excess Tax Depreciation - $(360000)

Unearned rent revenue deferred on books

But appropriately recognized in taxable income - $60000

Interest Income from New York municipal bonds - $(20000)

Taxable Income - $380000

Income Tax ($380000*30%) - $114000

Future Taxable(Deductible Amounts)

Tax Rate

Deferred Tax

Temporary Differences

(Asset)

Liability

Depreciation

$360000

30%

$108000

Unearned Rent

$60000

30%

$(18000)

Deferred Tax Expenses $108000

Deferred Tax Benefit $(18000)

Net Deferred tax expense $90000

Income Tax Expenses ($114000+$90000) - $204000

Deferred Tax Asset - $18000

Deferred Tax liability - $108000

Income tax Payable(380000*30%) - $114000