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The following information is available for Pina Corporation for 2017. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $122,000. This difference will reverse in equal amounts of $30,500 over the years 2018–2021. 2. Interest received on municipal bonds was $9,300. 3. Rent collected in advance on January 1, 2017, totaled $60,600 for a 3-year period. Of this amount, $40,400 was reported as unearned at December 31, 2017, for book purposes. 4. The tax rates are 40% for 2017 and 35% for 2018 and subsequent years. 5. Income taxes of $303,000 are due per the tax return for 2017. 6. No deferred taxes existed at the beginning of 2017. Compute taxable income for 2017. Taxable income for 2017 $ Compute pretax financial income for 2017. Pretax financial income for 2017 $ Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2017 and 2018. Assume taxable income was $1,031,000 in 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)Date
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2017 2018 Prepare the income tax expense section of the income statement for 2017, beginning with “Income before income taxes.” (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Pina CorporationIncome Statement (Partial)
December 31, 2017For the Year Ended December 31, 2017For the Quarter Ended December 31, 2017
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
$CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues
$Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
Explanation / Answer
Answer 1. Income Tax Expense 303,000 Tax Rate 0 Taxable Income for 2017 - $303,000 / 40% 757,500 Answer 2. Taxable Income 757,500 Excess Depreciation 122,000 Interest on Municipal Bonds 9,300 Rent Collected in Advance (40,400) Pretax Financial Income - 2017 848,400 Answer 3. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 2017 Income Tax Expense Dr. 329,540.00 ($839,100 X 40%) - 6,100 Deferred Tax Asset Dr. 16,160.00 $40,400 X 40% To Income Tax Payable 303,000.00 To Deferred Tax Liability 42,700.00 $122,000 X 35% 2018 Income Tax Expense Dr. 357,245.00 Deferred Tax Liability Dr. 10,675.00 $30,500 X 35% To Income Tax Payable 360,850.00 $1,031,000 X 35% To Deferred Tax Asset 7,070.00 ($40,400 / 2) X 35% Answer 4. Income before I Tax - 2017 848,400 Income Tax Expense: Current 303,000 Deferred 26,540 Income Expense Total 329,540 Net Income after Tax 518,860
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