Southern Atlantic Distributors began operations in January 2016 and purchased a

Question

Southern Atlantic Distributors began operations in January 2016 and purchased a delivery truck for $40,000. 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 2016, 30% in 2017, and 20% in 2018. Pretax accounting income for 2016 was $300,000, which includes interest revenue of $40,000 from municipal bonds. The enacted tax rate is 40%. Assuming no differences between accounting income and taxable income other than those described above Required: 1. Complete the following table given below and prepare the journal entry to record income taxes in 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands.) Tax Rate % | | Tax | Recorded as: Pretax accounting income Permanent difference Income subject to taxation Temporary difference Income taxable in current year $ 300

Explanation / Answer

1.

temporary difference

(dep. as per books: 40000/4 = 10000

dep. as per income tax:40000*50%=20000

difference = 10000)

journal entry

2. net income :

pretax income = $300000

income tax expense = $104000

net income = $ 196000

tax rate % tax recorded as pretax accounting income $300000 permanent difference (interest from bonds) 40000 income subject to taxation $260000 x 40% = 104000 income tax expense

temporary difference

(dep. as per books: 40000/4 = 10000

dep. as per income tax:40000*50%=20000

difference = 10000)

10000 x 40% = 4000 deferred tax liability income taxable in current year 250000 x 40% = 100000 income tax payable

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