P16.1 (Three differences, no beginning deferred taxes, multiple rates) The follo
ID: 2435385 • Letter: P
Question
P16.1 (Three differences, no beginning deferred taxes, multiple rates) The following information is available for Swanson Ltd for the financial year ended
30 June 2006.
1. Depreciation reported on the tax return exceeded depreciation reported on the
income statement by $100 000. This difference will reverse in equal amounts
of $25 000 over the next 4 financial years.
2. Exempt income received was $10 000.
3. Rent collected in advance on 1 July 2005 totalled $60 000 for a 3-year period. Of
this amount, $40 000 was reported as unearned at 30 June 2006 for accounts
purposes.
4. The tax rates are 30% for the financial year ended 30 June 2006 and 35% for all
subsequent years.
5. Income tax of $360 000 is payable according to the 30 June 2006 tax return.
6. No deferred taxes existed at 1 July 2006.
Required
(a) Calculate taxable profit for 30 June 2006.
(b) Calculate pre-tax accounting profit for 30 June 2006.
(c) Prepare the journal entries to record income tax expense, deferred income
taxes, and income tax payable for 30 June 2006 and 2007. Assume taxable
profit was $980 000 for 2007.
For part A, am I supposed to the take the $360,000 income tax and divide it by 30%(tax rate), to get the taxable profit?
And I am not sure about part b and c as well. Please help me. Thanks!
Explanation / Answer
a) Income tax payable (income tax ex penses) $ 60,000 is given for 2006
Taxable income
X
X taxable income
(b) Computation of pre tax financial income for 2006:
Pretax financial income X
Excess depreciation (100,000)
Municipal interest (10,000)
Unearned rent 40,000
Taxable income $900,000
Solving:
X $100,000
X
X
X
(c) Journal entry:
Date
Accounts title
Dr
Cr
2006
Income tax expense
Deferred tax assets ($40,000
Income tax payable
Deferred tax liability
291,000
14,000
2007
Income tax expense
Deferred tax assets
Income tax payable
Deferred tax liability
341,250
(d) Income statement
For 2006
Income before income taxes $970,000
Income tax expense
Less:
Current $291,000
Deferred ($35,000 - 14,000 ) 312,000
Net income $658,000
Date
Accounts title
Dr
Cr
2006
Income tax expense
Deferred tax assets ($40,000
Income tax payable
Deferred tax liability
291,000
14,000
2007
Income tax expense
Deferred tax assets
Income tax payable
Deferred tax liability
341,250
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.