Crowley, Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 40%
ID: 2963011 • Letter: C
Question
Crowley, Inc. had pre-tax accounting income of $1,800,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions:
Received rent from Jane, Co. for 2016
$64,000
Municipal bond income
$80,000
Depreciation for tax purposes in excess of book depreciation
$40,000
Installment sales revenue to be collected in 2016
$108,000
a.. For 2015, what is the amount of income taxes expense for Crowley, Inc?
b. At the end of 2015, what deferred tax account(s) AND balance(s) would be reported on Crowley, Inc.
Received rent from Jane, Co. for 2016
$64,000
Municipal bond income
$80,000
Depreciation for tax purposes in excess of book depreciation
$40,000
Installment sales revenue to be collected in 2016
$108,000
Explanation / Answer
a. Given this information, we first find taxable income, which is -40K+108K=68K. Note that I did not include the rent recevied or the municipal bond income. Since the rent is for 2016, it will not be realized until then, and will be considered a liability, and it will not be counted as income. As for the municipal bond income, municipal bonds are tax-exempt, so they would not be included in taxable income. Multiplied by a 40% tax rate, this yields $27,200 in income tax expense for 2015.
b. At the end of 2015, Crowley will report rent owed as a liability of $64,000, and it will report an Accounts receivable balance of $108,000. Although the balance sheet will also include cash from the year, this will not be considered part of a deferred tax account.
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