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Chapter 19: 13Q (page 1093)

At the end of the year, Falabella Co. has pretax financial income of \(550,000. Included in the \)550,000 is \(70,000 interest income on municipal bonds, \)25,000 fine for dumping hazardous waste, and depreciation of \(60,000. Depreciation for tax purposes is \)45,000. Compute income taxes payable, assuming the tax rate is 30% for all periods.

Short Answer

Expert verified

Fine or penalty is the type of payment an organization makes to the associated authority for which therules and regulations are violated. It is claimed under the income tax payable amount.

Step by step solution

01

Given the following

Particulars

Amount

Pretax financial income

$550,000

Interest income on municipal bonds

$70,000

Fine

$25,000

Depreciation

$60,000

Depreciation for tax purpose

$45,000

Tax rate

30%

02

Computation of income tax payable

Particulars

Amount

Pretax financial income

$550,000

Less: Interest income

$70,000

Add: Fine

$25,000

Add: Depreciation $60,000-$45,000

$15,000

Taxable income

$520,000

Multiply: Tax rate

30%

Income tax payable

$156,000

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Most popular questions from this chapter

Dexter Company appropriately uses the asset-liability method to record deferred income taxes. Dexter reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year. Dexter received rent revenues in advance this year. These revenues are included in this year’s taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability. Instructions (a) What are the principles of the asset-liability approach?

The following information is available for Remmers Corporation for 2017. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by \(120,000. This difference will reverse in equal amounts of \)30,000 over the years 2018–2021. 2. Interest received on municipal bonds was \(10,000. 3. Rent collected in advance on January 1, 2017, totaled \)60,000 for a 3-year period. Of this amount, \(40,000 was reported as unearned at December 31, 2017, for book purposes. 4. The tax rates are 40% for 2017 and 35% for 2018 and subsequent years. 5. Income taxes of \)320,000 are due per the tax return for 2017. 6. No deferred taxes existed at the beginning of 2017. Instructions (a) Compute taxable income for 2017. (b) Compute pretax financial income for 2017. (c) Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2017 and 2018. Assume taxable income was $980,000 in 2018. (d) Prepare the income tax expense section of the income statement for 2017, beginning with “Income before income taxes.”

Using the information from BE19-2, assume this is the only difference between Oxford’s pretax financial income and taxable income. Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable, and show how the deferred tax liability will be classified on the December 31, 2017, balance sheet.

Kleckner Company started operations in 2013. Although it has grown steadily, the company reported accumulatedoperating losses of \(450,000 in its first four years in business. In the most recent year (2017), Kleckner appears to haveturned the corner and reported modest taxable income of \)30,000. In addition to a deferred tax asset related to its net operatingloss, Kleckner has recorded a deferred tax asset related to product warranties and a deferred tax liability related to accelerateddepreciation. Given its past operating results, Kleckner has determined that it is not probable that it will realize any of thedeferred tax assets. However, given its improved performance, Kleckner management wonders whether there are any accountingconsequences for its deferred tax assets. They would like you to conduct some research on the accounting for recognitionof its deferred tax asset.

Instructions

Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/).(Click on the IFRS tab and then register for freeeIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser torespond to the following questions. (Provide paragraph citations.)

(a)Briefl y explain to Kleckner management the importance of future taxable income as it relates to the recognition ofdeferred tax assets.

(b)What are the sources of income that may be relied upon in assessing realization of a deferred tax asset?

(c)What are tax-planning strategies? From the information provided, does it appear that Kleckner could employ a taxplanningstrategy in evaluating its deferred tax asset?

Teri Hatcher Inc., in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2016. Book Basis Tax Basis Equipment (net) \(400,000 \)340,000 Estimated warranty liability \(200,000 \) –0– It is estimated that the warranty liability will be settled in 2017. The difference in equipment (net) will result in taxable amounts of \(20,000 in 2017, \)30,000 in 2018, and \(10,000 in 2019. The company has taxable income of \)520,000 in 2016. As of the beginning of 2016, the enacted tax rate is 34% for 2016–2018, and 30% for 2019. Hatcher expects to report taxable income through 2019.Instructions (a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (b) Indicate how deferred income taxes will be reported on the balance sheet at the end of 2016.
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