Income Taxes

The Collins Co. reported the following information for the year ending December 31, 2023:

Total Revenue: $1,560,000

Accounts Receivable: $300,000

Total Expenses: $900,000

Tax Rate: 35%

1. Calculate the income before taxes and the tax expense according to GAAP.

2. Calculate the taxable income and the taxes payable according to the IRS.

3. Complete the necessary journal entry.

Leases

The Dalton Co. signed an agreement to lease a machine from the Evans Co. on January 1, 2023. The Dalton Co. depreciates all machinery they own using the straight-line method. The terms of the agreement follow:

• Ownership remains with the Lessor.
• The fair market value of the machine is $60,000, and the estimated life span is ten years.
• There is no purchase option on the lease.
• The lease term is for seven years.
• The annual payment of $10,000 is due on December 31 each year.
• The incremental borrowing rate is 6%.

2. Use the four-way test to determine if this is a capital lease or an operating lease.
4. For the lessee, record the journal entries required when the contract is signed, the first annual payment, and any required depreciation.
6. For the lessor, record the journal entries required when the lease is signed, and the receipt of the first annual payment.