Problem 19-09

Ayayai Company began operations at the beginning of 2021. The following information pertains to this company.

1.		Pretax financial income for 2021 is $101,000.
2.		The tax rate enacted for 2021 and future years is 20%.
3.		Differences between the 2021 income statement and tax return are listed below:
		(a)		Warranty expense accrued for financial reporting purposes amounts to $7,000. Warranty deductions per the tax return amount to $1,800.
		(b)		Gross profit on construction contracts using the percentage-of-completion method per books amounts to $85,800. Gross profit on construction contracts for tax purposes amounts to $66,100.
		(c)		Depreciation of property, plant, and equipment for financial reporting purposes amounts to $58,400. Depreciation of these assets amounts to $72,500 for the tax return.
		(d)		A $3,300 fine paid for violation of pollution laws was deducted in computing pretax financial income.
		(e)		Interest revenue recognized on an investment in tax-exempt municipal bonds amounts to $1,400.
4.		Taxable income is expected for the next few years. (Assume (a) is short-term in nature; assume (b) and (c) are long-term in nature.)

Compute taxable income for 2021.

Taxable income for 2021

$

Compute the deferred taxes at December 31, 2021, that relate to the temporary differences described above.

Deferred tax liability		$
Deferred tax asset		$

Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Draft the income tax expense section of the income statement, beginning with Income before income taxes. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Ayayai Company Income Statement (Partial) December 31, 2021For the Year Ended December 31, 2021For the Quarter Ended December 31, 2021
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues	$
Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$

Click if you would like to Show Work for this question:

Open Show Work