Question
Denver Co, at the end of 20x1, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax
Denver Co, at the end of 20x1, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $300,000 Bad debt expense of $12,000 was recognized (reported on 20x1 income statement). The account will be written off (tax deductible) in 20x2. Prepaid expenses deducted in the tax return, but not included in the income statement: $8,000 In 20x1, Denver collected a total of $75,000 rent from its tenant. At the end of 20x1, the unearned portion of the rent amounted to $40,000 Extra depreciation (tax depreciation minus accounting depreciation): $75,000 Non-taxable interest revenue from municipal bonds: $20,000 The use of the depreciable assets will result in taxable amounts of $25,000 in each of the next three years.
1) Compute the taxable income for 20x1. Show your computation. 2) Prepare the journal entry to record income tax expense, deferred income tax and income tax payable for 20x1, assuming an income tax rate of 40% for all years. 3) Compute net income for 20x1.
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