The following information is available for Bridgeport Coporation for 2017. (a) D
ID: 2563985 • Letter: T
Question
The following information is available for Bridgeport Coporation for 2017.
(a) Depreciation reported on the tax return exceeded depreciation reported on the income statement by $122,000 in 2017. This difference along with the cumulative temporary difference associated with deferred tax liability at the beginning of 2017 will reverse in equal amounts over next 3 years.
(b) Interest received on municipal bonds totaled $12,000 in 2017.
(c) Rent collected in advanced on 1/1/2017, totaled $63,900 for a 3-year period. The company recognized $21,300 as revenue on the book. This differece along with the cumulative temporary differece associated with the deferred tax asset at the beginning of 2017 will reverse in equal amounts in next 2 years.
(d) Deferredd tax asset was $52,000 at 12/21/2016; deferred tax liability is $40,000 at 12/31/2016
(e) Tax rate is 40% for years before and including 2017 and 35% for years before 2017
(f) Pretax finanacial income in 2017 was $500,000
1. Compute taxable income in 2017
2. Prepare the journal entry for 2017 to record income tax expense, deferred taxes, and income tax payable.
3. What is Bridgeport's effective tax rate in 2017?
Explanation / Answer
Solution:
1. X (.40) = $500,000 taxes due for 2017
X = $500,000 ÷ .40
X = $12,500,000 taxable income for 2017
2.
2017
Income Tax Expense
($175,000 + $52,000 – $40,000)........................................................ 187,500
Deferred Tax Liability.................................................................... 40,000
Income Tax Payable ($500,000 X .35).................................... 175,000
Deferred Tax Asset .............................................................. 52,000
c. Effective tax rate = Income tax expense/Taxable income
Effective tax rate = $187,500/$12,500,000
Effective tax rate = 14.96%
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