Answered step by step
Verified Expert Solution
Question
1 Approved Answer
K. Shuman purchased a landscape maintenance firm on 1/2/20X1 and renamed the firm Shuman Enterprises. Information regarding the firm for the first two years of
K. Shuman purchased a landscape maintenance firm on 1/2/20X1 and renamed the firm Shuman Enterprises. Information regarding the firm for the first two years of operation is shown below: a. Pretax GAAP income was $100,000 in 20X1 and $150,000 in 20X2. b. Heavy equipment acquired in the purchase was valued at $120,000. The equipment had a life of 4 years and no salvage value. Depreciation for tax purposes was $48,000 in 20X1 and $36,000 in 20x2. Depreciation for GAAP purposes was $30,000 in each year. c. In 20X2, pretax GAAP income included $12,500 of interest on State of Indiana Bonds. This interest is not taxable for U.S. federal purposes. d. During 20X1, $40,000 was collected in advance for landscape maintenance to be performed in 20X2. This amount was included in 20X1 taxable income but was not included in GAAP income until 20X2. In 20X2, $25,000 was collected in advanced for work to be performed in 20X3. This amount was recognized as income for tax purposes in 20X2 but will not be recognized as income for GAAP purposes until 20X3. e. The enacted tax rate for 20X1 was 21%. The newly enacted tax rate for 20X2 and subsequent years is 25%. f. At December 31, 20X1, the Deferred tax asset account had a $12,000 debit balance, and the Deferred tax liability account had a $5,400 credit balance. Required: 1. Compute Shuman's GAAP Income tax expense for the year ended December 31, 20X2.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started