Question
Marin Corp. sold an investment on an installment basis. The total gain of $68,400 was reported for financial reporting purposes in the period of sale.
Marin Corp. sold an investment on an installment basis. The total gain of $68,400 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment-sales method for tax purposes. The installment period is 3 years; one-third of the sale price is collected in the period of sale. The tax rate was 40% in 2020, and 20% in 2021 and 2022. The 20% tax rate was not enacted in law until 2021. The accounting and tax data for the 3 years is shown below.
Financial Accounting | Tax Return | |||
2020 (40% tax rate) | ||||
Income before temporary difference | $79,800 | $79,800 | ||
Temporary difference | 68,400 | 22,800 | ||
Income | $148,200 | $102,600 | ||
2021 (20% tax rate) | ||||
Income before temporary difference | $79,800 | $79,800 | ||
Temporary difference | 0 | 22,800 | ||
Income | $79,800 | $102,600 | ||
2022 (20% tax rate) | ||||
Income before temporary difference | $79,800 | $79,800 | ||
Temporary difference | 0 | 22,800 | ||
Income | $79,800 | $102,600 |
A) Calculate cumulative temporary differences for years 2020-2022.
B)Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable at the end of each year. No deferred income taxes existed at the beginning of 2020.
C
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