Chapter 16

Q1 (12 pts.)

Weatherly Company reported the following results for the year ended December 31, 2013, its first year of operations:

Income (per books before income taxes) $3,300,000

Taxable income 4,450,000

The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2014. Assume that the enacted tax rates in effect are 35% in 2013 and 30% in 2014?

1.1 (3pts) Does this temporary difference result in a Deferred Tax Asset or Liability? Also, please indicate the amount.

	Amount	Or	Amount
DTA		DTL

1.2 (1pt) Please indicate the amount of income tax payable.

1.3 (4pt) Record the tax journal entry.

1.4 (4pt) List the last three lines on the income statement

Account or subtotal	Amount

1.5 (4pt) Extra Credit

Effective Tax Rate

Explain in about 10 words why the effective tax rate is neither 30% nor 35%