Question
Problem 2. The following differences between financial and taxable income were reported by Diver Inc. for the year: (a) Excess of tax depreciation over
Problem 2. The following differences between financial and taxable income were reported by Diver Inc. for the year: (a) Excess of tax depreciation over book depreciation $10,000 (b) Interest revenue on municipal bonds 9,000 (c) (d) Excess of estimated warranty expense over actual expenditures Rent of next year paid 54,000 12,000 (e) Fines paid 30,000 (f) Excess of income reported under percentage-of-completion accounting for financial reporting over completed-contract accounting used for tax reporting 45,000 3,000 Unrealized losses on marketable securities recognized for financial reporting 18,000 (g) Interest on indebtedness incurred to purchase tax-exempt securities (h) Instructions (1) Assume that Diver had pretax accounting income [before considering items (a) through (h)] of $900,000 for the current year. Compute the taxable income for the current year. (2) Make entries to record income tax expense for the year assuming that the tax rate is 20%. (3) Prepare the income tax expense section of the income statement, beginning with "Income before income taxes." (4) Indicate how the income tax items should be presented on the balance sheet.
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