Question

Problem 19-01

The following information is available for Remmers Corporation for 2020.

1.		Depreciation reported on the tax return exceeded depreciation reported on the income statement by $120,000. This difference will reverse in equal amounts of $30,000 over the years 2021–2024.
2.		Interest received on municipal bonds was $10,000.
3.		Rent collected in advance on January 1, 2020, totaled $60,000 for a 3-year period. Of this amount, $40,000 was reported as unearned at December 31, 2020, for book purposes.
4.		The tax rates are 20% for 2020 and 17% for 2021 and subsequent years.
5.		Income taxes of $160,000 are due per the tax return for 2020.
6.		No deferred taxes existed at the beginning of 2020.

Compute taxable income for 2020.

Compute pretax financial income for 2020.

Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2020 and 2021. Assume taxable income was $480,000 in 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Prepare the income tax expense section of the income statement for 2020(partial income statement), beginning with “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

Solution

1)
Taxable Income be X
X(.40) = $160,000 taxes due for 2020
Taxable Income = $160,000/20%	$ 800,000.00
2)
Taxable income [calculated above]	$ 800,000.00
Excess depreciation	$ 120,000.00
Municipal interest	$   10,000.00
Unearned rent	$ (40,000.00)
Pretax financial income for 2020	$ 890,000.00
3)
General Journal	Debit	Credit
Year 2020
Income Tax Expense	$ 173,600.00
Deferred Tax Asset ($40,000 X .17)	$ 6,800.00
Income Tax Payable ($800,000 X .20)		$ 160,000.00
Deferred Tax Liability ($120,000 X .17)		$ 20,400.00
Year 2021
Income Tax Expense	$ 79,900.00
Deferred Tax Liability ($120,000 ÷ 4) X .17	$ 5,100.00
Income Tax Payable ($480,000 X .17)		$ 81,600.00
Deferred Tax Asset (($40,000 ÷ 2) X .17)		$ 3,400.00
4)
Income before income taxes		$ 890,000.00
Income tax expense
Current	$ 160,000.00
Deferred ($20,400 – $6,800)	$ 13,600.00	$ 173,600.00
Net income		$ 716,400.00

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