Da Bears has pretax accounting income (PAI) of $66,000 in 2016 after including t
ID: 2452820 • Letter: D
Question
Da Bears has pretax accounting income (PAI) of $66,000 in 2016 after including the effects of the appropriate items from the following information:
1. MACRS (tax) depreciation $20,000
2. Officer’s life insurance premium expense 15,000
3. Interest revenue on municipal bonds 25,000
4. Depreciation taken for financial reporting purposes 38,000
5. Actual product warranty costs deducted for tax purposes 20,000
6. Excess of accrual-basis financial accounting sales over cash-basis
sales recognized for tax purposes 11,000
7. Estimated product warranty expense for financial reporting
Purposes 27,000
At the beginning of 2016, Da Bears had a deferred tax liability (DTL) balance of $17,250 which related to a $41,800 taxable temporary difference related to depreciation and another $15,700 taxable temporary difference related to accrual-basis sales differences. Da Bears had a deferred tax asset (DTA) balance of $14,850 related to a $49,500 deductible temporary difference resulting from a warranty liability (obligation under warranty) balance at the beginning of the year. The tax rate for 2016 is 30%, but during 2016, Congress changed the enacted tax rate to 34% for all future tax years beginning in 2017.
Required:
1) Compute Da Bears’ taxable income for 2016. What are income taxes payable for 2016?
2) Prepare Da Bears’ journal entry to record income tax expense for 2016 (assume no valuation allowance existed as of the beginning of the year and is unnecessary at the end of the year).
3) What is Da Bears’ effective tax rate?
Explanation / Answer
Sol :
Note : 1) Since books are maintained on accrual basis , so sales on accrual basis are taken for financial reporting pupose and taxation purpose. There will be no change for that
2) We will add back the Dep for financial reporting and deduct dep for taxation
3) All the figures will be in $
Pre tax Income = 66000
Add: Dep for Financial reporting = 38000
Less: Dep for Taxation purpose = 20000
Amount liable to tax = 66000+38000-20000 =84000
1) Tax @ 30% = 84000*30% = 25200
2 ) Journal Entry :
3) I don't understand why this question asked. Effective rate is 30% as there is nothing to be compared with
Jounal Entry for Tax S.no Particulars Dr. Cr. 1 Income Tax _________________________ Dr. 25200 To Bank (Amount of tax paid) 25200Related Questions
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