P19.1 (Lo1,2,4) Excel (Three Differences, No Beginning Deferred Taxes, Multiple

Question

P19.1 (Lo1,2,4) Excel (Three Differences, No Beginning Deferred Taxes, Multiple Rates) The Excel n is available for Remmers Corporation for 2020. erences. No Be 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $120,000. This difference will reverse in equal amounts of $30,000 over the years 2021-2024. 2. Interest received on municipal bonds was $10,000. 3. Rent collected in advance on January 1, 2020, totaled $60,000 for a 3-year period. Of this amount, $40,000 was reported as unearned at December 31, 2020, for book purposes 4. The tax rates are 20% for 2020 and 17% for 2021 and subsequent years. 5. Income taxes of $160,000 are due per the tax return for 2020. 6. No deferred taxes existed at the beginning of 2020. Instructions a. Compute taxable income for 2020. b. Compute pretax financial income for 2020. c. Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2020 and 2021. Assume taxable income was $480,000 in 2021 d. Prepare the income tax expense section of the income statement for 2020, beginning with "Income before income taxes."

Explanation / Answer

a. Computation of Taxable Income for 2020 Let Taxable income for 2020 be "X" 20% *x=$160000 X=$160000/20%= $800000 Hence , Taxable Income would be $800000 b) Computation of Pretax Financial Income for 2020 Taxable income $8,00,000 Excess depreciation $1,20,000 municipal interest $10,000 unearned rent -$40,000 Pretax financial income for 2020 $8,90,000 c)Journal Entry Account Tittle & Explanatio Debit Credit Income Tax Expense $1,73,600 Deferred Tax Asset (40000*17%) $6,800 Income Tax Payable ($800000*20%) $1,60,000 Deferred Tax Liability (120000*17%) $20,400 To Record Income Tax Expense for 2020 Income Tax Expense $79,832 Deferred Tax Liability (121600/4*17%) $5,168 Income Tax Payable (480000*17%) $81,600 Deferred Tax Asset (40000/2)*17% $3,400 To Record Income Tax Expense for 2021 d)Statement Showing Income Statement Income before income tax Less: income tax expense: $8,00,000 Current Tax Expense $1,60,000 Deferred Tax Expense (20400-6800) $13,600 $1,73,600 Net Income $6,26,400

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