Assignment 1: (Three Differences, compute Taxable Income, Entry for Taxes)
Zurich Company reports pretax financial income of $70,000 for 2007. The following items cause taxable income to be different than pretax financial income.
1) Depreciation on the tax return is greater than depreciation on the income statement by $16,000
2) Rent collected on the tax return is greater than rent earned on the income statement by $22,000
3) Fines for pollution appears as an expense of $11,000 on the income statement.
Zurich's tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2007.
a) Compute taxable income and income taxes payable for 2007
b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2007
c) Prepare the income tax section of the income statement for 2007, beginning with the line "Income before income taxes."
d) Compute the effective income tax rate for 2007.
Assignment (Two Temporary Differences, One Rate, Beginning Deferred Taxes)
The following facts related to Krung The Corporation.
1) Deferred tax liability, January 1, 2007, $40,000
2) Deferred tax asset, January 1, 2007, $0
3) Taxable income for 2007, $95,000
4) Pretax financial income for 2007, $200,000
5) Cumulative temporary difference at December 31, 2007, giving rise to future taxable amounts, $240,000
6) Cumulative temporary difference at Dec 31, 2007, giving rise to future deductible' amounts, $35,000
7) Tax rate for all years 40%
8) The company is expected to operate profitable in the future.
Instructions:
a) Compute income tax payable
b) Prepare journal entry to record income tax expense deferred income taxes income taxes, and income taxes payable for 2007
c) Prepare the income tax expense section of the income statement for 2007, beginning with the line "Income before income taxes."