Question
1. Charlotte, Inc. began business on January 1, 2017. Its pretax financial income for the first two year was as follows: 2017 $150,000 2018 100,000
1. Charlotte, Inc. began business on January 1, 2017. Its pretax financial income for the first two year was as follows:
2017 | $150,000 |
2018 | 100,000 |
The following Items cased the only differences between pretax financial income and taxable income.
i. In 2017, the company collected $105,000 of rent; of this amount, $35,000 was earned in 2017; the other $70,000 will be earned equally over the 2018-19 period. The full $105,000 was included in the taxable income in 2017.
ii. In 2017, the company reported depreciation expense in its financial statements of $80,000. Depreciation expense for tax purposes was 110,000. The difference will revere evenly over the next three years (2018-2020).
The tax rate in 2017 is 30% and no tax rate changes are enacted during the three year period.
Required:
a. Determine taxable income for 2017 and 2018.
b. Determine the deferred income taxes at the end of 2017, and prepare the journal entry to record income taxes for 2017.
c. Determine the deferred income taxes at the end of 2018, and prepare the journal entry to record income taxes for 2018.
d. Prepare the Income Tax section of the income statement, starting with Pretax Net Income and ending with Net Income after Taxes for both 2017 and 2018.
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