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1. The following information is available for the first three years of operations for Santos Inc.: Year Taxable Income 2020 $850,000 2021 900,000 Depreciation of
1. The following information is available for the first three years of operations for Santos Inc.:
- Year Taxable Income
2020 $850,000
2021 900,000
- Depreciation of property, plant and equipment for financial reporting purposes amounts to $30,000 each year for 3 years beginning in 2020. The company is able to deduct the full cost under the IRS Code Section 179 $90,000 amount allowed for tax purposes in 2020 (note there is no tax depreciation in future years).
- On July 1, 2020, $280,000 was collected in advance for rental of a building for a two-year period July 1, 2020 June 30, 2022. The entire $280,000 was reported as taxable income in 2020. The company uses the accrual basis of accounting for financial statement purposes.
- In 2021 Santos Company recorded a $40,000 accrual for litigation liability which will be paid in 2022.
- The company sells its merchandise on an installment contract basis. In 2020, Santos Inc. reported gross profit of $220,000 tax purposes, and $520,000 for financial statement purposes. This will result in taxable amounts of $150,000 in each of the next two years.
- Warranty expense accrued for financial reporting was $12,000 in 2020. Warranty deductions on the tax returns were $7,000 in 2020 and $5,000 in 2021.
- Santos Inc. paid a $2,000 fine in 2021 for violating pollution laws.
- The enacted tax rates existing at December 31, 2020 are 20% for 2020 and 25% for 2021 and thereafter.
Instructions
- Complete the worksheet provided. It includes the following.
- A reconciliation of Book Income to Taxable Income for 2020.
- A schedule of future taxable and (deductible) amounts at the end of 2020.
- A schedule of the deferred tax (asset) and liability at the end of 2020.
- The journal entry to record income tax expense, deferred income taxes, and income tax payable for 2020.
- Show how the deferred income taxes should be reported on the Balance Sheet at December 31, 2020.
- Show how the taxes should be reported on the Income Statement at December 31, 2020.
- Repeat a. to f. above for 2021.
****Please show calculations or how you got the figures.
I will upload worksheet in a comment
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