31. Willingham, Inc., an accrual basis C corporation, reports pretax book income
ID: 2456258 • Letter: 3
Question
31. Willingham, Inc., an accrual basis C corporation, reports pretax book incomeof $1.6 million. At the beginning of the tax year, Willingham reported nodeferred tax accounts on its balance sheet. It is subject to a 35% U.S. income tax ratein the current year and for the foreseeable future. Willingham’s book-tax differences include the following. Compute the entity’s current and deferred income tax expense for the year.
Addition to the book reserve for uncollectible receivables (nospecific write-offs occurred) $4,000,000
Tax depreciation in excess of book 3,000,000
Book gain from installment sale of nonbusiness asset, deferred for tax 2,000,000
Interest income from school district bonds 200,000
Continue with the results. Prepare the GAAP journal entries for Willingham’s income tax expense.
Explanation / Answer
pretax book income = 1600000
Add: Addition to the book reserve for uncollectible receivables = 4000000
Less : Excess of Tax depreciation = $ 3000000
Less : Book gain from installment sale of nonbusiness asset = $ 2000000
Less: Interest income from school district bonds = $ 200000
Taxable Income = 400000
Current Income Tax Liability = Taxable Income*tax rate
Current Income Tax Liability = 400000*35%
Current Income Tax Liability = 140000
Temproary Timming Difference created during the year
Excess of Tax depreciation = 3000000
Book gain from installment sale of nonbusiness asset = $ 2000000
Less : Addition to the book reserve for uncollectible receivables = 4000000
Net Temproary Timming Difference created for deferred Tax = 1000000
Interest income from school district bonds is permenant difference
Deffered Tax = 1000000*35%
Deffered Tax = 350000
Willingham’s income tax expense = 140000 + 350000
Willingham’s income tax expense = 490000
Journal Entry
Account Title & Explaination Debit Credit Income Tax Expenses 490000 Income Tax Payable 140000 Deferred Tax Liability 350000Related Questions
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