Gallo Light began operations in 2016. The company sometimes sells used warehouse
ID: 2572011 • Letter: G
Question
Gallo Light began operations in 2016. The company sometimes sells used warehouses on an installment basis. In those cases, Gallo Light reports income in its income statement in the year of the sale. In its income tax return, though, Gallo Light reports installment income by the installment method. Installment income in 2016 was $88,800, which Gallo Light expects to collect equally over the next three years. The tax rate is 30%, but based on an enacted law, is scheduled to become 35% in 2018.
Gallo Light's pretax accounting income from the 2016 income statement was $828,000, which includes $38,000 of interest revenue from an investment in municipal bonds. There were no differences between accounting income and taxable income other than those described above.
Prepare the appropriate journal entry to record Gallo Light's 2016 income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands. Round your answers to 2 decimal places.)
Gallo Light began operations in 2016. The company sometimes sells used warehouses on an installment basis. In those cases, Gallo Light reports income in its income statement in the year of the sale. In its income tax return, though, Gallo Light reports installment income by the installment method. Installment income in 2016 was $88,800, which Gallo Light expects to collect equally over the next three years. The tax rate is 30%, but based on an enacted law, is scheduled to become 35% in 2018.
Gallo Light's pretax accounting income from the 2016 income statement was $828,000, which includes $38,000 of interest revenue from an investment in municipal bonds. There were no differences between accounting income and taxable income other than those described above.
Explanation / Answer
1)
interest on municipal bond is exempt for taxable purpose so its a permanent difference
Installment is taxable in the year of receipt for tax purpose so it will create a tax liability
2)Net Income =Accounting income -Income tax expense
= 828000-239960
= $588040
2016 2017 2018 2019 Accounting Income 828000 less:permanent difference -interest (38,000) Temporary difference Installment sales (88,800) 29600 [88800/3years] 29600 29600 Taxable income 701200 Tx rate 30% 30%` 35% 35% deferred tax liability created due to deferment of installment income 210360 [701200*.30] 8880 [29600*.30] 10360 [29600*.35] 10360Related Questions
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