Question
Olympus Motors, Inc., computed a pretax financial income of $90,000 for its first year of operations ended December 31, 2015. In preparing the income tax
Olympus Motors, Inc., computed a pretax financial income of $90,000 for its first year of operations ended December 31, 2015. In preparing the income tax return for the year, the tax accountant determined the following differences between 2015 financial income and taxable income.
Nondeductible expenses | $25,000 |
Nontaxable revenues | 15,500 |
Temporary differenceinstallment sales reported in financial income but not in taxable income | 32,000 |
The temporary difference is expected to reverse in the following pattern as the cash is collected:
2016 | $ 7,000 |
2017 | 16,500 |
2018 | 8,500 |
Total | $32,000 |
The enacted tax rates for this year and the next three years are as follows:
2015 | 40% |
2016 | 35 |
2017 | 33 |
2018 | 30 |
Instructions:
- 1. Prepare journal entries to record income taxes payable and deferred income taxes.
- 2. Prepare a partial income statement for Olympus Motors beginning with Income from continuing operations before income taxes for the year ended December 31, 2015.
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