Question
In its first year of operations, Martha Enterprises Corp. reported the following information: a. Income before income taxes was $670,000. b. The company acquired capital
In its first year of operations, Martha Enterprises Corp. reported the following information:
a. Income before income taxes was $670,000.
b. The company acquired capital assets costing $2,700,000; depreciation was $157,000, and CCA was $135,000.
c. The company recorded an expense of $170,000 for the one-year warranty on the companys products; cash disbursements amounted to $82,000.
d. The company incurred development costs of $80,000 that met the criteria for capitalization for accounting purposes. Development work was still ongoing at year-end. These costs could be immediately deducted for tax purposes.
e. The company made a political contribution of $33,000 and expensed this for accounting purposes.
f. The income tax rate was 28% and the year 2 tax rate was enacted, at 30%.
In the second year, the company reported the following:
a. Earnings before income tax were $1,730,000.
b. Depreciation was $157,000; CCA was $390,000.
c. The estimated warranty costs were $265,000, while the cash expenditure was $335,000.
d. Additional development costs of $215,000 were incurred to complete the project. For accounting purposes, amortization of $51,000 was recorded.
e. Golf club memberships for top executives cost $38,000; this was expensed for accounting purposes as a marketing expense.
Required: Prepare the journal entries to record income tax expense for the first and second years of operation.
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