Question

Question 1 and 2
Tor 2021 from Fidelity's recoras follows: $ 68,000 92,000 Interest income on municipal governmental bonds Depreciation claimed on the 2021 tax return in excess of depreciation on the income statement Carrying amount of depreciable assets in excess of their tax basis at year-end Warranty expense reported on the income statement Actual warranty expenditures in 2021 160,000 44,000 34,000 Fidelity's income tax rate is 25%. At January 1, 2021, Fidelity's records indicated balances of zero and $17,000 in its deferred tax asset and deferred tax liability accounts, respectively. Required: 1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry. 2. What is Fidelity's 2021 net income? Complete this question by entering your answers in the tabs below. Required 1 Calculation Required 1 G) Required 2 Determine the amounts necessary to record income taxes for 2021. (Enter your answers in thousands rounded to 1 decimal place. Amounts to be deducted should be indicated with a minus sign.) Tax Rate % Tax $ Recorded as: $ 1,012 Pretax accounting income Permanent difference $ 1,012 x Income subject to taxation Temporary difference х X Taxable income (income tax return) $ 1,012 x < Prev 8 of 12 HHH HH Next >

Answer 1

Answer:

1)

The value of income taxes for 2021 is determined with the use of following table

	Amount (A)	Tax Rate (B)	Tax Value (A*B)	Recorded As:
Pre-Tax Accounting Income	1012
Permanent Difference:
Interest on Municipal Bonds	-68
Income Subject to Taxation	944	25.00%	236	Income Tax Expense
Temporary Difference:
Depreciation	-92	25.00%	-23	Deferred Tax Liability
Warranty Expense (44-34)	10	25.00%	2.5	Deferred Tax Asset
Taxable Income	862	25.00%	215.5	Income Tax Payable

_____

The journal entry is as below:

Event	Account Titles	Debit	Credit
1)	Income Tax Expense	$236
	Deferred Tax Asset	$2.5
	Deferred Tax Liability		$23
	Income Tax Payable		$215.50

_____

2)

The net income is calculated as below (all values are in 1000s):

Pre-Tax Income	1012
Less Income Tax Expense	-236
Net Income	$776

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		1	2	3	4
a	Income tax payable currently	37	70	81	113
b	Deferred tax asset - balance	4		5	5
c	Deferred tax asset change	2		-20	1
d	Deferred tax liability - Balance		4	4	23
e	Deferred tax liability - change		-4	2	23
f	Income tax expense	33	74	65	135
	working
a	Income tax payable currently	148*25%	280*25%	324*25%	452*25%
b	Deferred tax asset - balance	16*25%		20*25%	20*25%
c	Deferred tax asset change	4-2		5-25	5-4
d	Deferred tax liability - Balance		16*25%	16*25%	92*25%
e	Deferred tax liability - change		4-8	4-2	23
f	Income tax expense	37-4	70+4	81-(20)+4	113-1+23