Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

Southern Atlantic Distributors began operations in January 2013 and purchased a

ID: 2421503 • Letter: S

Question

Southern Atlantic Distributors began operations in January 2013 and purchased a delivery truck for $20,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2013, 30% in 2014, and 20% in 2015. Pretax accounting income for 2013 was $200,000, which includes interest revenue of $30,000 from municipal bonds. The enacted tax rate is 20%.

  

Assuming no differences between accounting income and taxable income other than those described above:

  

Complete the following table given below and prepare the journal entry to record income taxes in 2013.(If no entry is required for an event, select "No journal entry required" in the first account field.)

      
      

     

Southern Atlantic Distributors began operations in January 2013 and purchased a delivery truck for $20,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2013, 30% in 2014, and 20% in 2015. Pretax accounting income for 2013 was $200,000, which includes interest revenue of $30,000 from municipal bonds. The enacted tax rate is 20%.

Explanation / Answer

1) Journal entry to record Income taxes:

Income tax Expense (Dr)                             34,000

Deferred tax Liability (Cr)                                                             1,000

Income tax payable (Cr)                 33,000                  

Pre tax accounting income                                          =, $200,000

Permanent difference:

Interest from Municipal Bonds                                          (30,000)

Temporary difference:

Excess tax depreciation                                                         (5000)

Taxable Income                                                                  165,000

2) Net Income:

Pre-tax accounting income                                                   200,000

Income Tax Expense                                                             34,000

Net Income                                                                          166,000

Hire Me For All Your Tutoring Needs
Integrity-first tutoring: clear explanations, guidance, and feedback.
Drop an Email at
drjack9650@gmail.com
Chat Now And Get Quote