Bio-Tech Company reports pretax accounting income of $200,000 in each of the yea
ID: 2566188 • Letter: B
Question
Bio-Tech Company reports pretax accounting income of $200,000 in each of the years 2014, 2015 and 2016. The company is subject to a 40% tax rate, and has the following differences between pretax accounting income and taxable income. 1. Bio-Tech reports an installment sale of $18,000 in 2014 with $12,000 to be collected in 2015 and $6,000 to be collected in 2016. 2. Bio-Tech pays life insurance premiums for its key officers of $5,000 in 2015 and 2016. Although not tax-deductible, Bio-Tech expenses the premiums for book purposes. Required: Prepare the required journal for income taxes in 2014, 2015, and 2016.Explanation / Answer
2014 2015 2016 Pretax accounting Income 2,00,000 2,00,000 2,00,000 Permanent Difference Life Insurance preimum 5,000 5,000 Temporary difference: 2,00,000 2,05,000 2,05,000 Installment sales (18,000) 12,000 6,000 Taxable Income 1,82,000 2,17,000 2,11,000 Tax at 40% 72,800 86,800 84,400 Defferred Tax Liability 7,200 (4,800) (2,400) Income tax expense (to balance) 80,000 82,000 82,000 Journal entry at the end of 2014 Debit Credit Income tax expense (to balance) 80,000 Deferred tax liability (determined above) 7,200 Income tax payable (determined above) 72,800 Journal entry at the end of 2015 Income tax expense (to balance) 82,000 Deferred tax liability (determined above) 4,800 Income tax payable (determined above) 86,800 Journal entry at the end of 2016 Income tax expense (to balance) 82,000 Deferred tax liability (determined above) 2,400 Income tax payable (determined above) 84,400
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