I need help finding the Income Taxes Expense and Payable for an accounting probl

Question

I need help finding the Income Taxes Expense and Payable for an accounting problem. I did everything else but I cannot find out the Income Tax Expense and Payable. Please show me step by step on how to find the income Tax Expense and Payable. I'll highlight the specific question in bold that specifically asks about the income tax expense. Thank you!. Here is the full question:

"On December 1, Year 1, John and Patty Driver formed a corporation called Susquehanna Equipment Rentals. The new corporation was able to begin operations immediately by purchasing the assets and taking over the location of Rent-It, an equipment rental company that was going out of business. The newly formed company uses the following accounts:

The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December, the corporation entered into the following transactions:

Issued to John and Patty Driver 20,000 shares of capital stock in exchange for a total of $240,000 cash.

Purchased for $288,800 all of the equipment formerly owned by Rent-It. Paid $168,000 cash and issued a one-year note payable for $120,000. The note, plus all 12-months of accrued interest, are due November 30, Year 2.

Paid $14,400 to Shapiro Realty as three months’ advance rent on the rental yard and office formerly occupied by Rent-It.

Purchased office supplies on account from Modern Office Co., $1,200. Payment due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.)

Received $9,600 cash as advance payment on equipment rental from McNamer Construction Company. (Credit Unearned Rental Fees.)

Excluding the McNamer advance, equipment rental fees earned during the first 15 days of December amounted to $21,600, of which $14,400 was received in cash.

Purchased on account from Earth Movers, Inc., $720 in parts needed to repair a rental tractor. (Debit an expense account.) Payment is due in 10 days.

Rented a backhoe to Mission Landscaping at a price of $300 per day, to be paid when the backhoe is returned. Mission Landscaping expects to keep the backhoe for about two or three weeks.

Susquehanna Equipment Rentals was named, along with Mission Landscaping and Collier Construction, as a co-defendant in a $30,000 lawsuit filed on behalf of Kevin Davenport. Mission Landscaping had left the rented backhoe in a fenced construction site owned by Collier Construction. After working hours on December 26, Davenport had climbed the fence to play on parked construction equipment. While playing on the backhoe, he fell and broke his arm. The extent of the company’s legal and financial responsibility for this accident, if any, cannot be determined at this time. ( Note: This event does not require a journal entry at this time, but may require disclosure in notes accompanying the statements.)

Purchased a 12-month public-liability insurance policy for $11,520. This policy protects the company against liability for injuries and property damage caused by its equipment. However, the policy goes into effect on January 1, Year 2, and affords no coverage for the injuries sustained by Kevin Davenport on December 26.

Received a bill from Universal Utilities for the month of December, $840. Payment is due in 30 days.

Equipment rental fees earned during the second half of December amounted to $24,000, of which $18,720 was received in cash.

During December, the company earned $4,400 of the rental fees paid in advance by McNamer Construction Company on December 8.

As of December 31, six days’ rent on the backhoe rented to Mission Landscaping on December 26 has been earned.

Salaries earned by employees since the last payroll date (December 26) amounted to $1,680 at month-end.

It is estimated that the company is subject to a combined federal and state income tax rate of 40 percent of income before income taxes (total revenue minus all expenses other than income taxes). These taxes will be payable in Year 2.

Cash Capital stock Accounts receivable Retained earnings Prepaid rent Dividends Unexpired insurance Income summary Office supplies Rental fees earned Rental equipment Salaries expense Accumulated depreciation: Rental equipment Maintenance expense Notes payable Utilities expense Accounts payable Rent expense Interest payable Office supplies expense Salaries payable Depreciation expense Dividends payable Interest expense Unearned rental fees Income taxes expense Income taxes payable

The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December, the corporation entered into the following transactions:

Dec. 1

Issued to John and Patty Driver 20,000 shares of capital stock in exchange for a total of $240,000 cash.

Dec. 1

Purchased for $288,800 all of the equipment formerly owned by Rent-It. Paid $168,000 cash and issued a one-year note payable for $120,000. The note, plus all 12-months of accrued interest, are due November 30, Year 2.

Dec. 1

Paid $14,400 to Shapiro Realty as three months’ advance rent on the rental yard and office formerly occupied by Rent-It.

Dec. 4

Purchased office supplies on account from Modern Office Co., $1,200. Payment due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.)

Dec. 8

Received $9,600 cash as advance payment on equipment rental from McNamer Construction Company. (Credit Unearned Rental Fees.)

Dec. 12 Paid salaries for the first two weeks in December, $6,240. Dec. 15

Excluding the McNamer advance, equipment rental fees earned during the first 15 days of December amounted to $21,600, of which $14,400 was received in cash.

Dec. 17

Purchased on account from Earth Movers, Inc., $720 in parts needed to repair a rental tractor. (Debit an expense account.) Payment is due in 10 days.

Dec. 23 Collected $2,400 of the accounts receivable recorded on December 15. Dec. 26

Rented a backhoe to Mission Landscaping at a price of $300 per day, to be paid when the backhoe is returned. Mission Landscaping expects to keep the backhoe for about two or three weeks.

Dec. 26 Paid biweekly salaries, $6,240. Dec. 27 Paid the account payable to Earth Movers, Inc., $720. Dec. 28 Declared a dividend of 12 cents per share, payable on January 15, Year 2. Dec. 29

Susquehanna Equipment Rentals was named, along with Mission Landscaping and Collier Construction, as a co-defendant in a $30,000 lawsuit filed on behalf of Kevin Davenport. Mission Landscaping had left the rented backhoe in a fenced construction site owned by Collier Construction. After working hours on December 26, Davenport had climbed the fence to play on parked construction equipment. While playing on the backhoe, he fell and broke his arm. The extent of the company’s legal and financial responsibility for this accident, if any, cannot be determined at this time. ( Note: This event does not require a journal entry at this time, but may require disclosure in notes accompanying the statements.)

Dec. 29

Purchased a 12-month public-liability insurance policy for $11,520. This policy protects the company against liability for injuries and property damage caused by its equipment. However, the policy goes into effect on January 1, Year 2, and affords no coverage for the injuries sustained by Kevin Davenport on December 26.

Dec. 31

Received a bill from Universal Utilities for the month of December, $840. Payment is due in 30 days.

Dec. 31

Equipment rental fees earned during the second half of December amounted to $24,000, of which $18,720 was received in cash.

Data for Adjusting Entries a. The advance payment of rent on December 1 covered a period of three months. b. The annual interest rate on the note payable to Rent-It is 6 percent. c. The rental equipment is being depreciated by the straight-line method over a period of eight years. d. Office supplies on hand at December 31 are estimated at $720. e.

During December, the company earned $4,400 of the rental fees paid in advance by McNamer Construction Company on December 8.

f.

As of December 31, six days’ rent on the backhoe rented to Mission Landscaping on December 26 has been earned.

g.

Salaries earned by employees since the last payroll date (December 26) amounted to $1,680 at month-end.

h.

It is estimated that the company is subject to a combined federal and state income tax rate of 40 percent of income before income taxes (total revenue minus all expenses other than income taxes). These taxes will be payable in Year 2.

Explanation / Answer

Date Account Title Debit Credit Dec. 1 Cash 240000 Capital stock 240000 Dec. 1 Rental equipment 288000 Cash 168000 Notes payable 120000 Dec. 1 Prepaid rent 14400 Cash 14400 Dec. 4 Office supplies 1200 Accounts payable 1200 Dec. 8 Cash 9600 Unearned rental fees 9600 Dec. 12 Salaries expense 6240 Cash 6240 Dec. 15 Cash 14400 Accounts Receivable 7200 Rental fees earned 21600 Dec. 17 Maintenance expense 720 Accounts payable 720 Dec. 23 Cash 2400 Accounts Receivable 2400 Dec. 26 Accounts Receivable 6300 Unearned rental fees 6300 (300*21) Dec. 26 Salaries expense 6240 Cash 6240 Dec. 27 Accounts payable 720 Cash 720 Dec. 28 Retained Earnings 2400 Dividends payable 2400 20000*0.12 Dec. 29 NO ENTRY Dec. 29 Unexpired insurance 11520 Cash 11520 Dec. 31 Utilities expense 840 Accounts payable 840 Dec. 31 Cash 18720 Accounts Receivable 5280 Rental fees earned 24000 Dec.31 Adjusting Entries a. Rent expense 4800 Prepaid rent 4800 (14400/3) b. Interest expense 600 Interest payable 600 (120000*6%*1/12) c. Depreciation expense 3000 Accumulated depreciation: Rental equipment 3000 (288000/8/12) d. Office supplies expense 480 Office supplies 480 (1200-720) e. Unearned rental fees 4400 Rental fees earned 4400 f. Unearned rental fees 1800 Rental fees earned 1800 (300*6) g. Salaries expense 1680 Salaries payable 1680 h. Income taxes expense 10880 Income taxes payable (refer Income Statement) 10880 663820 663820 LEDGER ACCOUNTS Net Ledger Bal. Date Account Title Debit Credit Debit Credit Accounts payable 1200 Accounts payable 720 Dec. 27 Accounts payable 720 Accounts payable 840 2040 Accounts Receivable 7200 Accounts Receivable 2400 Dec. 26 Accounts Receivable 6300 Accounts Receivable 5280 16380 Accumulated depreciation: Rental equipment 3000 3000 Capital stock 240000 240000 Dec. 1 Cash 240000 Cash 168000 Cash 14400 Dec. 8 Cash 9600 Cash 6240 Dec. 15 Cash 14400 Dec. 23 Cash 2400 Cash 6240 Cash 720 Cash 11520 Dec. 31 Cash 18720 78000 c. Depreciation expense 3000 3000 Dividends payable 2400 2400 h. Income taxes expense 10880 10880 Income taxes payable 10880 10880 b. Interest expense 600 600 Interest payable 600 600 Dec. 17 Maintenance expense 720 720 Notes payable 120000 120000 Dec. 4 Office supplies 1200 Office supplies 480 720 d. Office supplies expense 480 480 Dec. 1 Prepaid rent 14400 Prepaid rent 4800 9600 a. Rent expense 4800 4800 Dec. 1 Rental equipment 288000 288000 Rental fees earned 21600 Rental fees earned 24000 Rental fees earned 4400 Rental fees earned 1800 51800 Dec. 28 Retained Earnings 2400 2400 Dec. 12 Salaries expense 6240 Dec. 26 Salaries expense 6240 g. Salaries expense 1680 14160 Salaries payable 1680 1680 Unearned rental fees 9600 Unearned rental fees 6300 e. Unearned rental fees 4400 f. Unearned rental fees 1800 9700 Dec. 29 Unexpired insurance 11520 11520 Dec. 31 Utilities expense 840 840 663820 663820 442100 442100 TRIAL Balance as at Dec 31 Debit Credit Cash 78000 Accounts Receivable 16380 Unexpired insurance 11520 Prepaid rent 9600 Office supplies 720 Rental equipment 288000 Accumulated depreciation: Rental equipment 3000 Accounts payable 2040 Salaries payable 1680 Unearned rental fees 9700 Dividends payable 2400 Income taxes payable 10880 Interest payable 600 Notes payable 120000 Capital stock 240000 Retained Earnings 2400 Rental fees earned 51800 Depreciation expense 3000 Maintenance expense 720 Office supplies expense 480 Rent expense 4800 Salaries expense 14160 Utilities expense 840 Interest expense 600 Income taxes expense 10880 Totals 442100 442100 Income statement For the month of Dec. Rental fees earned 51800 Less: Expenses: Depreciation expense 3000 Maintenance expense 720 Office supplies expense 480 Rent expense 4800 Salaries expense 14160 Utilities expense 840 Interest expense 600 24600 Income before tax 27200 Less: Income taxes expense(40%*27200) 10880 Net Income 16320 So, Income tax expense as seen from above is 10880 Balance Sheet As at Dec 31 Current assets: Cash 78000 Accounts Receivable 16380 Unexpired insurance 11520 Prepaid rent 9600 Office supplies 720 Total Current assets 116220 Rental equipment 288000 Accumulated depreciation: Rental equipment -3000 Total fixed assets 285000 Total Assets 401220 Liabilities & Equity Current Laibilities Accounts payable 2040 Salaries payable 1680 Unearned rental fees 9700 Dividends payable 2400 Income taxes payable 10880 Interest payable 600 Total Current Laibilities 27300 Long-term Liabilities Notes payable 120000 Total Long-term Liabilities 120000 Total Liabilities 147300 Equity Capital stock 240000 Retained Earnings (16320-2400) 13920 Total equity 253920 Total Liabilities & Equity 401220

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