Tax information and implications -$1,500 in meal and entertainment expenses show

Question

Tax information and implications

-$1,500 in meal and entertainment expenses show as a permanent difference for tax. Prepare the necessary adjusting entry.

-The company uses straight line depreciation for book and MACRS depreciation for the tax return

-MACRS depreciation was $209,301 higher than book. Prepare the adjusting entry for the deferred tax.

-There have been recent tax structure changes the could impact the company. Peyton Approved has been a C Corp since the beginning of these changes. Peyton provides for taxes at 25% of pretax income (20% Federal, 5% state).

Trial Balance Adjusting Entries Adjusted TB DR CR DR CR DR CR Marketable Securities    5,500,000.00    265,000.00    5,235,000.00 Unrealized Gain/Loss                         -      265,000.00        265,000.00 Deferred Tax Liability                         -   ? Deferred Tax Expense                         -   ?

Explanation / Answer

$1,500 in meal and entertainment expenses being ,permanent difference not going to be reversed (No deferred tax asset/liability created) Defrerred Tax asset on MACRS Depn.(209301*25%) 52325.25 (results in Lower book income ,than tax income & hence lower tax liability than that recorded in books for financial reporting) Deferred tax liability on Unrealized Gain/Loss(265000*25%) 66250 (results in more book income than tax income & hence higher tax liability than that recorded in books for financial reporting) Net deferred tax liability 13924.75 So, the required Journal entry will be Debit Credit Deferred Tax Expense 13924.75 Deferred Tax Liability 13924.75

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