Questions -
Q1. Pablo Corp. reported pretax financial income of $100,000 for 2012 and $ 130,000 for 2013. Prior to 2012, Paplo Corp had not timing differences. During the year 2012, the following differences which caused taxable income to differ from pretax financial income, occurred
a. Depreciation on the income tax return is $20,000 more than it is in the financial statement. The controller expected this difference to reverse during the years 2013 and 2014, in equal amounts each year.
b. Rent collected in cash totaled $60,000 and was reported in the 2012 income tax return. Of this amount $10,000 was recognized for financial purpose in 2012 balance of $50,000 will be recognized in 2013.
c. Environmental Protection Agency fines and penalties of $ 10,000 were paid in 2012 and reflected as an expense in the 2012 financial statement
Pablo corp's income tax rate is 30% for current year and for the foreseeable future. It expected to report taxable income in all future years.
Required: Prepare the journal entries for record income tax expense, deferred income tax, and income tax payable for the year 2013 and 2012. Please show all calculation and how you arrived to each number.
Q2. The records for Smuge Company disclose the following data for the year 2013:
1) Installment sales recorded on the books was $200,000; collections on installment sales were $150,000
2) Life insurance premiums paid on officer was $ 3,800.
3) Equipment was acquired January 1 for $ 300,000, for financial reporting, straight line depreciation over a 10 year life (no salvage value) is used. For tax purposes, MACRS depreciation is used; Smuge may deduct 14% for 2013
4) Interest received on tax exempt Illinois state bonds was $ 9,000
5) The estimated warrant liability accrued in 2013 was $ 19,600. Repair costs paid out under warranties in 2013 were $13,600. The differences will be paid in future years.
6) Pre tax financial income for 2013 is $ 250,000
7) Income tax rate is 30%
Required: Create a schedule showing in details how you arrive at taxable income for the year 2013.