Refer to the information in E18-3 for Melissa Inc. Assume that the company follows the taxes payable method of accounting for income taxes under private enterprise GAAP. During the year, Melissa Inc. made tax instalment payments of $42,000.
In E Melissa Inc. reports accounting income of $105,000 for 2011. The following items cause taxable income to be different than income reported on the financial statements.
1. Capital cost allowance (on the tax return) is greater than depreciation on the income statement by $16,000.
2. Rent reported on the tax return is $24,000 higher than rent earned on the income statement.
3. Non-deductible fines for pollution appear as an expense of $15,000 on the income statement.
4. Melissa’s tax rate is 30% for all years and the company expects to report taxable income in all future years. There are no future taxes at the beginning of 2011. Melissa reports under the PE GAAP future income taxes method.
Instructions
(a) Calculate the taxable income and tax expense for the year ended December 31, 2011.
(b) Prepare the journal entry(ies) to record income taxes at December 31, 2011.
(c) Prepare the income statement for 2011, beginning with the line “Income before income taxes.”
(d) Provide the balance sheet presentation for any resulting income tax balance sheet accounts at December 31, 2011.