The following information is provided by Goose Corporation: 1. Prior to 2010, ta
ID: 2350889 • Letter: T
Question
The following information is provided by Goose Corporation:1. Prior to 2010, taxable income and pretax financial income were identical.
2. Pretax financial income is $1,700,000 in 2010 and $1,400,000 in 2011.
3. On January 1, 2010, equipment costing $1,200,000 is purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Use the half-year convention for tax purposes).
4. Interest of $60,000 was earned on tax-exempt municipal obligations in 2011.
5. Included in 2011 pretax financial income is an extraordinary gain of $200,000, which is fully taxable.
6. The tax rate is 35% for all periods.
7. Taxable income is expected in all future years.
INSTRUCTIONS:
Prepare the journal entry to record 2011 income tax expense, income tax payable, and deferred taxes. (There is a debit for 1 account and credits for 3 different accounts).
Explanation / Answer
Book Depreciation Tax Depreciation Difference 2010 $ 150,000 $ 120,000a $30,000 2011 150,000 240,000 (90,000) 2012 150,000 240,000 (90,000) 2013 150,000 240,000 (90,000) 2014 150,000 240,000 (90,000) 2015 150,000 120,000* 30,000 2016 150,000 0 150,000 2017 150,000 0 150,000 ===================================================================== Totals $1,200,000 $1,200,000 $ 0 a($1,200,000/5) *0.50 (a) Pretax financial income for 2011 $1,400,000 Nontaxable interest (60,000) Excess depreciation ($240,000 – $150,000) (90,000) ---------------------------------------------------------------------- Taxable income for 2011 $1,250,000 Tax rate @35%. So Income tax payable for 2011 = 35%*1250,000= $ 437,500 (b) Income Tax Expense Dr 469,000 Income Tax Payable Cr 437,500 Deferred Tax Liability Cr 21,000 Deferred Tax Asset Cr 10,500
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