Assignment
Exercise 1
Shetland Inc. had pretax financial income of $162,420 in 2014. Included in the computation of that amount is insurance expense of $3,090 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $13,100.
Prepare Shetland's journal entry to record 2014 taxes, assuming a tax rate of 30%.
Exercise 2
Felicia Rashad Corporation has pretax financial income (or loss) equal to taxable income (or loss) from 2006 through 2014 as follows.
|
|
Income (Loss)
|
Tax Rate
|
|
2006
|
$92,800
|
30 %
|
|
2007
|
128,000
|
30%
|
|
2008
|
54,400
|
35%
|
|
2009
|
153,600
|
50 %
|
|
2010
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(480,000)
|
40 %
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|
2011
|
288,000
|
40 %
|
|
2012
|
96,000
|
40 %
|
|
2013
|
336,000
|
40 %
|
|
2014
|
192,000
|
45%
|
Pretax financial income (loss) and taxable income (loss) were the same for all years since Rashad has been in business. Assume the carryback provision is employed for net operating losses. In recording the benefits of a loss carryforward, assume that it is more likely than not that the related benefits will be realized.
(a) What entries for income taxes should be recorded for 2010? (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(b) Indicate what the income tax expense portion of the income statement for 2010 should look like. Assume all income (loss) relates to continuing operations.
(c) What entry for income taxes should be recorded in 2011? (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(d) How should the income tax expense section of the income statement for 2011 appear?
(e) What entry for income taxes should be recorded in 2014?
(f) How should the income tax expense section of the income statement for 2014 appear?
Exercise 3
The accounting records of Shinault Inc. show the following data for 2014.
1. Life insurance expense on officers was $8,700.
2. Equipment was acquired in early January for $340,400. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Shinault used a 30% rate to calculate depreciation.
3. Interest revenue on State of New York bonds totaled $5,900.
4. Product warranties were estimated to be $54,900 in 2014. Actual repair and labor costs related to the warranties in 2014 were $17,100. The remainder is estimated to be paid evenly in 2015 and 2016.
5. Gross profit on an accrual basis was $147,200. For tax purposes, $75,400 was recorded on the installment-sales method.
6. Fines incurred for pollution violations were $6,500.
7. Pretax financial income was $833,900. The tax rate is 30%.
(a) Prepare a schedule starting with pretax financial income in 2014 and ending with taxable income in 2014.
(b) Prepare the journal entry for 2014 to record income taxes payable, income tax expense, and deferred income taxes.