The following differences enter into the reconciliation of financial income and taxable income of Hatley Ltd for the year ended 31 December 2008, its first year of operation. The enacted income tax rate is 30% for all years.
Pretax accounting income $450,000
Excess tax depreciation (240,000)
Litigation accrual 35,000
Unearned rent revenue accrued on the books but appropriately
recognised in taxable income 25,000
Interest income from First State bonds (10,000)
Taxable income $260,000
1. Excess tax depreciation will reverse equally over a four-year period, 2009-2012.
2. It is estimated that the litigation liability will be paid in 2012.
3. Rent revenue will be recognised during the last year of the lease, 2012.
4. Interest revenue from the First State bonds is expected to be $10,000 each year until their maturity at the end of 2011.
Instructions
a) Compute for Income tax expense (show solutions)
b) Compute for Income tax payable (show solutions)
c) Compute for Deferred tax asset (show solutions)
d) Compute for Deferred tax liability (show solutions)
e) Prepare journal entries