Hunt Co. at the end of 2015, its first year of operations, prepared a reconcilia

Question

Hunt Co. at the end of 2015, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

         Pretax financial income                                                                         $   750,000

         Estimated warranty expenses deductible for taxes when paid                    1,200,000

         Extra depreciation                                                                                 (1,650,000)

         Taxable income                                                                                    $   300,000

Estimated warranty expense of $800,000 will be deductible in 2016, $300,000 in 2017, and $100,000 in 2018. The use of the depreciable assets will result in taxable amounts of $550,000 in each of the next three years.

Instructions

(a)     Prepare a table of future taxable and deductible amounts.

(b)     Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2015, assuming an income tax rate of 40% for all years.

Explanation / Answer

2016 2017 2018 Total a. Future Taxable& Deductible amounts Warranties(Deductible) -800000 -300000 -100000 -1200000 Excess Depreciation(Taxable) 550000 550000 550000 1650000 b. Journal Entry Debit Credit IncomeTax Expense(Plug-in -Figure) 300000 Deferred Tax -Asset(1200000*40%) 480000 Deferred Tax- Liability(1650000*40%) 660000 IncomeTax Payable(300000*40%) 120000

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