Sorry, Here is the question: The Yeezy Company began operations in January 2017.

Question

Sorry,

Here is the question:

The Yeezy Company began operations in January 2017. After the first year of Operations, the following information was provided to you for year ending December 31, 2017.  

1. Pretax financial statement income is: $398,670.

2. Differences between financial statement income and tax return income were as follows:

a) Gross Profit reported on long-term projects was $65,000 on the financial statment, and $32,000 on the tax return.

b) Depreciation expense was $11,000 on the financial statement, and $19,500 on the tax return.

c) The company was fined $3,300 for OSHA violations on a housing project. The fine was reported as an expense in the financial statements, however, it is not deductible for tax purposes.

d) The Yeezy Company reported $1,500 of tax free interest revenue in the financial statement, it is not taxable on the tax return.

So I need answer for:

1. Prepare a schedule to reconcile financial statement income to tax return income?

2. Prepare all journal entries to account for taxes in 2017?

3. Prepare the income tax expense section of the income Statement starting with "income before Tax"?

4. Compute the "effective" tax rate for 2017?

5. Tax rate is 40%

Thank you!!

Explanation / Answer

1. A Schedule to reconcile financial statement income to tax return income Particulars Amount Pretax financial statement income $398,670 Less: Gross profit on long term projects $33,000 Tax free income $1,500 Depreciation expenses $8,500 Add: OSHA violation fine $3,300 Income on tax return $358,970 2. Journal entries to account for taxes in 2017 Income tax expenses $143,588       Income tax payable $143,588 (To record tax liability for the current year 2017) Deferred tax expenses $3,400       Deferred tax liabilities $3,400 (To record deferred tax liability for 2017) Working note: Income tax expenses = $358970 x 40% = $143588 Deferred Tax liability Temporary difference due to depreciation = $19500 - $11000 = $8500 Deferred Tax liability = $8500 x 40% = $3400 Permanent difference due to fine, tax free income and gross profit on long term projects will effect only current period and deferred tax will not be calculated on that. 3. Income statement Income before tax $398,670 Less: Income tax expenses             Current year income tax $143,588            Deferred tax expenses $3,400 Net income $251,682 4. Effective tax rate for 2017 Effective tax rate = Income tax expenses/Income before taxes                                     = $146988/$398670                                    = 36.87%

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