how computations to support your answers in the following questions PROBLEM Rowe
ID: 2555554 • Letter: H
Question
how computations to support your answers in the following questions PROBLEM Rowen, Inc. had pre-tax accounting income of $900,000 and a tax rate of 40% in 2010, its first year of operations. During 2010 the company had the following transactions: Received rent from Jane, Co. for 2011 Municipal bond income Depreciation for tax purposes in excess of book depreciation Installment sales revenue to be collected in 2011 $32,000 $40,000 $20,000 $54,000 Warranty expense $30,000 Required: 1) Compute Taxable Income 2) Prepare journal entries to record tax expense and deferred tax for 2010Explanation / Answer
1. Taxable income = Pre-tax income + Income from Rent - Municipal bond income - Depreciation for tax purpose in excess of book depreciation - Installment sales revenue
Taxable income = $900,000 + $32,000 - $40,000 - $20,000 - $54,000 -$30,000 = $724,000
2. Journal Entries:
Income Tax Expense = Taxable income * Tax rate = $724,000 * 40% = $289,000
Deferred Tax = Temporary difference between depreciation allowable and book depreciation * tax rate = $20,000 * 40% = $8,000
Income Tax Expense a/c ......dr $289,000
To Taxes Payable $289,000
(Being record of income tax expense)
Retained Earnings a/c................dr $8,000
To Deferred Tax Liability $8,000
(Being Deferred Tax recorded, calculated on the temporary difference between depreciation allowed and book depreciation)
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