Question
Pretax (GAAP-based) financial income for 2019 $500,000 Book depreciation during 2019 of $150,000 and tax depreciation for 2019 of $280,000 Interest income on municipal bonds
Pretax (GAAP-based) financial income for 2019 $500,000
Book depreciation during 2019 of $150,000 and tax depreciation for 2019 of $280,000
Interest income on municipal bonds for the year 2019 5,000
Prepaid rental expense as of 12-31-19 6,000
Accrued warranty expense payable as of 12-31-19 8,000
Fine expense/penalty incurred and paid during 2019 for violating a federal law 78,000
Pension expense on Hs defined benefit plan for the year 2019 21,000
Cash contributions made to Hs defined benefit pension plan during the year 2019 24,000
Bad debt expense for the year 2019 7,000
Write-offs during the year 2019 3,000
Unrealized holding loss for the year 2019 on a trading debt investment security 8,000
Unrealized holding gain for the year 2019 on an available-for-sale debt investment security 2,000
The excess depreciation reverses as follows: $35,000 in 2020; $65,000 in 2021; $30,000 in 2022.
Z expects the unrealized holding gains/losses on investment securities and the prepaid rent to reverse in 2020.
Z expects all other temporary differences to reverse evenly in 2020 and 2021.
Assume enacted tax rates are as follows: 2019: 28% 2020: 21% 2021: 21% 2022: 25%
Prepare a schedule reconciling Zs 2019 pretax financial income to its taxable income. Identify EACH item in your reconciliation as a permanent difference or a temporary difference. If the item is a temporary difference, indicate if it creates a deferred tax asset or a deferred tax liability. Prepare the journal entry to record Zs income tax expense, deferred tax assets, deferred tax liabilities, and income taxes payable for 2019.
In addition, reconcile Zs pretax income amount at 2019s income tax rate with the income tax expense amount Z will report on its 2019 income statement.
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