Problem - At the beginning of 2011, its first year of operation, buffola, Inc. purchased a machine for $100,000. The depreciation method used for financial reporting purposes was straight line and for tax purposes w as sum of the year digits. The machine has useful life of 4 year and no salvage value
Additional information
Assume enacted income tax rate of 20% for 2011 and 25% for all other year
Pretax financial income was $16,000 in 2011 and $3000 for 2012
Included in this income each year was municipal bond interest of $600
In 2012, the company paid fines of $100
In 2011 they also received $4000 from a customer in advance and properly recorded this as unearned revenue for GAAP purpose (the company will earn it in 2012). For tax purpose, this revenue is recorded as earned when the cash is received.
Required:
1) Prepare the journal entries to record income taxes at the end of 2011?
2) Prepare the journal entries to record income taxes at the end of 2012?