Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

During 2018, Black wheel Company first year of operations, the company reported pretax financial income of $580,000. Black wheel's enacted tax rate is 35% for

During 2018, Black wheel Company first year of operations, the company reported pretax financial income of $580,000. Black wheel's enacted tax rate is 35% for 2018 and 40% for all later years. Black wheel expects to have taxable income in each of the next 5 years. The effects on future tax returns of temporary differences existing at December 31, 2018, are summarized below.

Future Years
2019 2020 2021 2022 2023 Total
Future Taxable(deductible)Amounts
Installments Sales $80000 $80000 $80000 $240000
Depreciation $12000 $12000 $12000 $12000 $12000 $60000
unearned rent ($35000) ($35000) ($70000)

Instructions (a) Prepare a schedule to show the calculation of deferred taxes at December 31, 2018. (b) Compute taxable income for 2018. (c) Prepare the journal entry to record income taxes payable, deferred taxes and income tax expense for 2018. Listed below are items that are treated differently for accounting purposes than they are for tax purposes. (d) (i) Explain the difference between a temporary difference and a permanent difference. (ii) Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they will create deferred tax assets or deferred tax liabilities. 1. An accelerated depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets. 2. A landlord collects some rents in advance. Rents received are taxable in the period when they are received. 3. Expenses are incurred in obtaining tax-exempt income. 4. Costs of guarantees and warranties are estimated and accrued for financial reporting purposes. 5. Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes. 6. Interest is received on an investment in tax-exempt governmental obligations. 7. For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes, but the assets lives are shorter for tax purposes. 8. The tax return reports a deduction for 80% of the dividends received from various corporations. The cost method is used in accounting for the related investments for financial reporting purposes.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Sport Funding And Finance

Authors: Bob Stewart

2nd Edition

041583984X, 978-0415839846

More Books

Students also viewed these Finance questions