Question 1:

Metals Corporation reports pretax financial income of $260,000 for 2014. The following items cause taxable income to be different than pretax financial income.

*Rental revenue on the income statement is less than rental income on the tax return by $65,000. The additional taxable income is expected to be earned for GAAP in 2015.

*Depreciation deducted on the tax return is greater than depreciation expense on the income statement by $40,000.

*Interest on an investment in a municipal bond of $6,500 is reported on the income statement.

Metals tax rate is 40% for all years, and the company expects to report taxable income in all future years.

There are no deferred taxes at the beginning of 2014.

Required: Show all calculations. They should be embedded in cells as much as possible. If they are embedded in cells you need not show them separately.

1. Compute taxable income and income taxes payable for 2014.

2. Prepare the journal entry or entries to record income tax expense, deferred income taxes, and income taxes payable for 2014. Show all computations as part of explanations.

3. Prepare the income tax expense section of the income statement for the year ended December 31, 2014, beginning with the line Income before income taxes.

4. Prepare a partial classified balance sheet as of December 31, 2014 showing the tax accounts and amounts.