P19-1 (LOI,2,4) EXCEL (Three Differences, No Beginning Deferred Taxes, Multiple

Question

P19-1 (LOI,2,4) EXCEL (Three Differences, No Beginning Deferred Taxes, Multiple Rates) The following information is available for Remmers Corporation for 2017. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $120,000. This differ- ence will reverse in equal amounts of $30,000 over the years 2018-2021. 2. Interest received on municipal bonds was $10,000. 3. Rent collected in advance on January 1, 2017, totaled $60,000 for a 3-year period. Of this amount, $40,000 was reported as unearned at December 31, 2017, for book purposes. 4. The tax rates are 40%, for 2017 and 35% for 2018 and subsequent years. 5. Income taxes of $320,000 are due per the tax return for 2017. 6. No deferred taxes existed at the beginning of 2017. Instructions (a) Compute taxable income for 2017. (b) Compute pretax financial income for 2017 (c) Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2017 and 2018. Assume taxable income was $980,000 in 2018 (d) Prepare the income tax expense section of the income statement for 2017, beginning with "Income before income taxes."

Explanation / Answer

1 X (.40) = $320,000 taxes due for 2017 X = $320,000 ÷ .40 X = $800,000 taxable income for 2017 2 Taxable income [from part (a)] $        800,000 Excess depreciation $        120,000 Municipal interest $          10,000 Unearned rent $        (40,000) Pretax financial income for 2017 $        890,000 3 2017 General Journal Debit Credit Income Tax Expense ($320,000 + $42,000 – $14,000 $        348,000 Deferred Tax Asset ($40,000 X .35) $          14,000 Income Tax Payable ($800,000 X .40) $        320,000 Deferred Tax Liability ($120,000 X .35) $          42,000 4 2018 Income Tax Expense ($343,000 + $7,000 – $10,500) $        339,500 Deferred Tax Liability [($120,000 ÷ 4) X .35] $          10,500 Income Tax Payable ($980,000 X .35) $        343,000 Deferred Tax Asset [($40,000 ÷ 2) X .35] $            7,000 5 Income before income taxes $        890,000 Income Taxx expense Current $        320,000 Deferred ($42,000 – $14,000) $          28,000 $        348,000 Net Income $        542,000

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