2 You have been engaged by Company X to prepare the income tax expense calc and related disclosures for the year 3 ended December 31, 2021. Company X opened for business on January 1, 2021, and just completed its first year of 4 operations. The following information has been provided. You do not need to know any tax law to complete this 5 case; all tax timing differences are outlined below. 6 7 8 10 11 12 13 14 15 16 17 18 1 A trial balance for the year ended December 31, 2021, has been supplied 2 The company has confirmed that prepaid expenses should be currently deductible for tax purposes 19 3 The dividend income is from a small investment (less than 1%) in a publicly traded company. Dividends received from a less than 20% owned corporation are 50% excluded from taxable income permanently. The other half of the dividends are taxable in the current year. 20 4 The accrued bonus as of December 31, 2021 was paid on January 15, 2022. Tax law provides that accrued compensation paid by March 15th of the following year is currently deductible for tax purposes 5 Depreciation expense for tax purposes was calculated by the Company to be $300,000 6 Assume the Tax Rate is 40% 7 The accrued vacation was not paid before March 15, 2022. Tax law provides that accrued compensation paid by March 15th of the year following the accrual is currently deductible for tax purposes. 8 Lobbying expenses are never deductible for tax purposes 9 These particular meals and entertainment expenses are only 50% deductible for tax purposes. This is a perm. 10 Club dues are never deductible for tax purposes 11 Increases in Cash Surrender Value of Corporate Owned Life Insurance are not taxable (IRC Sec. 101) 12 The legal reserve represents a GAAP reserve. Reserves are not currently deductible for tax purposes unless they are fixed and determinable. Assume the legal reserve is not fixed and determinable, so it could be deducted in a later year, but not this one. 13 The allowance for doubtful accounts represents a GAAP reserve. Additions to reserves are not currently deductible for tax purposes unless they are fixed and determinable. Assume the allowance for doubtful accounts is not fixed and determinable, so it could be deducted in a later year, but not this one. 21 Your task is to do the following: 2 Calculate the Company's income tax provision AKA "income tax expense" ("Tax Expense Calc" tab) 22 1 Calculate current taxes payable to the IRS ("Tax Expense Calc" tab) 23 24 3 Calculate the Company's deferred tax asset or liability ("Deferred Taxes" tab) 25 26 27 2222 4 Prepare all of the Company's footnote disclosures with respect to income taxes ("Footnote" tab) 5 Provide the Company with an adjusting journal entry to correct its trial balance for the year ended December 31, 2021 ("Journal Entry" tab)