I want some help with this problem. The following information is available for a corporation for 2006.
1. Exess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse equally over the years 2007-2010.
2. Deferral, for book purposes of $20,000 of rent received in advance. The rent will be earned in 2007.
3. Pretax financial income, $300,000
4. Tax rate for all years is 40%
No beginning Deferred Taxes
(a) Compute taxable income for 2006
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2006.
(c) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2007, assuming taxable income of $325,000.
401(K) plan (like 403(b) plans, employee stock ownership plans and profit sharing plans) is a defined contribution plan. A defined contribution plan provides an individual account for each participant. The benefits are based on the amount contributed and are also affected by income, expenses, gains and loses.
A defined benefit plan (pension plan) promises the participant a specific monthly benefit at retirement and may state this as an exact dollar amount. Monthly benefits could also be calculated through a formula that considers a participants salary and service. A participant is generally not required to make contributions in a private sector fund but most public sector funds require employee contributions. Unlike defined contribution plans, the participant is not required to make investment decisions. A defined benefit plan is sometimes referred to as a fully funded pension plan.
Advantages of Defined Benefit Plans
- Guaranteed retirement income security for workers
- No investment risk to participants
- Cost of living adjustments
- Not dependent on the participant’s ability to save
- Tax deferred retirement savings medium
Disadvantages of Defined Benefit Plans
- Difficult to understand by participant
- Not beneficial to employees who leave before retirement
Advantages of Defined Contribution Plans
- Tax deferred retirement savings medium
- Participants have a certain degree of how much they choose to save
- Can be funded through payroll deductions
- Lump sum distributions may be eligible for special 10 year averaging
- Participants can benefit from good investment results
- Easily understood by participants
Disadvantages of Defined Contribution Plans
- Difficult to build a fund for those who enter late in life
- Participants bear investment risk