Question
At the end of its first year of operations on December 31, 2018, the Hondo Company reported the following information for the year: (Assume any
At the end of its first year of operations on December 31, 2018, the Hondo Company reported the following information for the year: (Assume any deferred tax assets are more likely than not to be realized).
Pretax income for financial reporting purposes | $360,000 |
Municipal bond interest revenue on State of Texas bonds | 12,000 |
Warranty expense for financial reporting purposes Warranty repair costs during period | 30,000 10,000 |
Excess of MACRS Depreciation for tax purposes above straight line for financial reporting purposes | 36,000 |
Officers life insurance premium expense | 4,000 |
Sales with an accrual basis profit for 2018 Installment basis profit for tax reportable for 2018* | 50,000 20,000 |
Fines for pollution violations | 5,000 |
Subscription revenues received in advance of product delivery | 15,000 |
The income tax rate for current and future years | 30% |
*Remainder reportable in 2019
Required:
a. Determine taxable income
b. Prepare the income tax journal entr(ies) for the company at the end of 2018 including both current and deferred taxes
c. What was total income tax expense for 2018 and show how it would be presented in the income statement starting with income before taxes for financial reporting purposes.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started