Chapter 19

Accounting for Taxes

Illustration - Timing & Permanent Differences

The following 2018 financial data from the books of Whether Tec has been provided to you for the purpose of adjusting the books to account for income tax expense and accruing income taxes payable.

Timing Differences

Depreciation Year	Acctg. Depr.	Tax Depr.		Diff.
2018	$100,000	$250,000		(150,000)
2019	100,000	150,000		(50,000)
2020	100,000	50,000		50,000
2021	100,000	25,000		75,000
2022	100,000	25,000		75,000
Total	$500,000	$500,000		-0-

Warranty

Warranty Accruals $100,000

Actual Warranty Costs 75,000

Permanent Differences

Government fines $10,000

Municipal Bond Income 30,000

Other data

Pretax Accounting Income $800,000

Tax Rate 20%

Instructions

1. Prepare a schedule computing taxable income for 2018.

2. Prepare journal entry to record taxes for 2018.

3. Prepare a partial Income statement showing the presentation of Income tax expense