6. Wellington Construction Equipment Manufacturers engaged in an installment sale with one of its major customers. The firm negotiated the terms of the installment sale for a specialized piece of equipment, full payment is required within three years. We present information related to Wellington's first three years of operations (Click the icon to view the data.) Assume that Wellington invested in tax-free municipal bonds. The bonds pay interest of $1.200 each year. In addition, a new tax law enacted at the beginning of year 2 reduced the corporate tax rate to 35%. (Assume the municipal bond interest income is not included in income before tax and taxable income.) Read the requirements Requirement a. Prepare the journal entries required to record the tax provision for all three years, as well as the journal entry needed to record the effect of the tax rate change on any deferred tax accounts. (Record debits first, then credits. Exclude explanations from any journal entries.) Begin with the journal entry required to record the tax provision for year 1. Year 1 Account (1) Income Tax Expense (2) Deferred Tax Liability (3) Income Taxes Payable (4) Next prepare the journal entry required at the beginning of year 2 to adjust for the effect of the tax rate change. Year 2 Account |(5) Deferred Tax Liability (6) Income Tax Expense Now prepare the journal entry required to record the tax provision for year 2. Year 2 Account (9) Income Tax Expense (10) Deferred Tax Liability ||(11) Income Taxes Payalde (12) Now prepare the journal entry required to record the tax provision for year 3. Account Year 3 |(13) Income Tax Expense (14) Deferred Tax Liability (15) Income Taxes payable (16) Requirement b. Determine the net income reported on the income statement for the three years. (Remember to recalculate the "Income before tax" amount for each year. Use parentheses or a minus sign for numbers to be subtracted.) Year 1 Year 2 Year 3 (17) Income Before Tax |(18) Income Tax Expense Net income Requirement c. Prepare the footnote, in dollars and percentages, required to reconcile the company's federal statutory income tax rate with its effective tax rate. Begin with Year 1 and then complete each successive year. (Use a minus sign or parentheses for a tax benefit. For accounts with a $0 balance, make sure to enter "O" in the appropriate cell, including any 0 percentages. Round the percentages to the nearest tenth of a percent, X.X%.) Review the completed journal entries. Footnote Year 1 Year 2 Year 3 Reconciliation Dollars Percentages Dollars Percentages Dollars Percentages |(19) Income Tax Statutory Rat del (20) Taxfree Interest (21) Tax Rate Change Adjustment |(22) Tax At the effective Rate. 1: Data Table Account Sales Gross Profit on Installment Sales Taxable portion of cash collected on installment sales Year 1 GAAP $ 4,000 $ $ 3,100 Tax 4,000 $ 0 Year 2 GAAP 15,800 $ 0 Year 3 Tax GAAP 15,800 $ 6,700 $ 0 0 Tax 6,700 0 400 (800) 1,600 (700) 1,100 (1,300) Operating Expenses (800) (700) (1,300) 6,300 $ 15,100 $ 5,400 Income before Tax Taxable income $ $ $ 3,600 40% 16,700 40% 6,500 40% Tax Rate $ 1,440 $ $ Tax Payable 6,680 2,600 2: Requirements a. Prepare the journal entries required to record the tax provision for all three years, as well as the journal entry needed to record the effect of the tax rate change on any deferred tax accounts. b. Determine the net income reported on the income statement for all three years. Prepare the footnote, in dollars and percentages, required to reconcile the company's federal statutory income tax rate with its effective tax rate. 6. Wellington Construction Equipment Manufacturers engaged in an installment sale with one of its major customers. The firm negotiated the terms of the installment sale for a specialized piece of equipment, full payment is required within three years. We present information related to Wellington's first three years of operations (Click the icon to view the data.) Assume that Wellington invested in tax-free municipal bonds. The bonds pay interest of $1.200 each year. In addition, a new tax law enacted at the beginning of year 2 reduced the corporate tax rate to 35%. (Assume the municipal bond interest income is not included in income before tax and taxable income.) Read the requirements Requirement a. Prepare the journal entries required to record the tax provision for all three years, as well as the journal entry needed to record the effect of the tax rate change on any deferred tax accounts. (Record debits first, then credits. Exclude explanations from any journal entries.) Begin with the journal entry required to record the tax provision for year 1. Year 1 Account (1) Income Tax Expense (2) Deferred Tax Liability (3) Income Taxes Payable (4) Next prepare the journal entry required at the beginning of year 2 to adjust for the effect of the tax rate change. Year 2 Account |(5) Deferred Tax Liability (6) Income Tax Expense Now prepare the journal entry required to record the tax provision for year 2. Year 2 Account (9) Income Tax Expense (10) Deferred Tax Liability ||(11) Income Taxes Payalde (12) Now prepare the journal entry required to record the tax provision for year 3. Account Year 3 |(13) Income Tax Expense (14) Deferred Tax Liability (15) Income Taxes payable (16) Requirement b. Determine the net income reported on the income statement for the three years. (Remember to recalculate the "Income before tax" amount for each year. Use parentheses or a minus sign for numbers to be subtracted.) Year 1 Year 2 Year 3 (17) Income Before Tax |(18) Income Tax Expense Net income Requirement c. Prepare the footnote, in dollars and percentages, required to reconcile the company's federal statutory income tax rate with its effective tax rate. Begin with Year 1 and then complete each successive year. (Use a minus sign or parentheses for a tax benefit. For accounts with a $0 balance, make sure to enter "O" in the appropriate cell, including any 0 percentages. Round the percentages to the nearest tenth of a percent, X.X%.) Review the completed journal entries. Footnote Year 1 Year 2 Year 3 Reconciliation Dollars Percentages Dollars Percentages Dollars Percentages |(19) Income Tax Statutory Rat del (20) Taxfree Interest (21) Tax Rate Change Adjustment |(22) Tax At the effective Rate. 1: Data Table Account Sales Gross Profit on Installment Sales Taxable portion of cash collected on installment sales Year 1 GAAP $ 4,000 $ $ 3,100 Tax 4,000 $ 0 Year 2 GAAP 15,800 $ 0 Year 3 Tax GAAP 15,800 $ 6,700 $ 0 0 Tax 6,700 0 400 (800) 1,600 (700) 1,100 (1,300) Operating Expenses (800) (700) (1,300) 6,300 $ 15,100 $ 5,400 Income before Tax Taxable income $ $ $ 3,600 40% 16,700 40% 6,500 40% Tax Rate $ 1,440 $ $ Tax Payable 6,680 2,600 2: Requirements a. Prepare the journal entries required to record the tax provision for all three years, as well as the journal entry needed to record the effect of the tax rate change on any deferred tax accounts. b. Determine the net income reported on the income statement for all three years. Prepare the footnote, in dollars and percentages, required to reconcile the company's federal statutory income tax rate with its effective tax rate