our answers in the following questions PROBLEM Rowen, Inc. had pre-tax accountin

Question

our answers in the following questions PROBLEM Rowen, Inc. had pre-tax accounting income of $900,000 and a tax rate of 40% in 2010, its first year of operations. During 2010 the company had the following transactions Received rent from Jane, Co. for 2011 Municipal bond income $32,000 $40,000 depreciation Installment sales revenue to be collected in 2011 $54,000 Warranty expense $30,000 Required: 1) Compute Taxable Income I,o00 2) Prepare journal entries to record tax expense and deferred tax for 2010.

Explanation / Answer

Pre Tax Accounting Income          900,000 Adjustments: Rent received in advance            32,000 Instalment sales revenue to be collected in 2011            54,000 Depreciation difference for tax purposes and accounting purpose            20,000 Municipal Bond Income, exempt from tx            40,000 Warranty expense            30,000 Net Taxable Income          724,000 Tax Expense @ 40% on $ 724,000          289,600 GENERAL JOURNAL ENTRIES 1 Tax Expense          289,600 Provision for Tax          289,600 (Being tax expense on $ 724,000 @ 40% as per calculations above) 2 Retained Earnings               8,000 Deferred Tax Liability              8,000 (Being tax @ 40% on $ 20,000 which is a temporary difference on account of depreciation allowable for tax purpose and book depreciation)

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