Rancho Cucamonga Inc. began business on January 1, 2020. The firm earned $100 from sales in its first year of business. Rancho Cucamonga collected $90 of revenue earned in cash during 2020 and reported a $10 account receivable on its 2020 balance sheet. The firm paid $70 cash for operating expenses in 2020 and reported a $5 account payable for unpaid operating expenses on its 2020 balance sheet. Income tax laws only recognize cash collected from sales and cash paid for expenses as taxable items in the year collected or paid.

Rancho Cucamonga also reported a $10 fine, paid in cash, to the federal government for unfair business practices. Generally accepted accounting principles allow firms to report government fines as a business expense, but income tax laws do not allow firms to deduct fines paid when determining taxable income.

Finally, the federal income tax rate was 20% in 2020, and Rancho Cucamonga was not subject to any state income taxes.

6 Parts

Chapter 8 Comprehensive Problem \begin{tabular}{|l|l|} \hline Sales revenue & \\ \hline Operating expenses & \\ \hline Operating income & \\ \hline Expense for unfair practices & \\ \hline Income before taxation & \\ \hline \end{tabular} Chapter 8 Comprehensive Problem \begin{tabular}{|l|l|} \hline Taxable revenue ($10090) & \\ \hline Deductible expenses ($755) & \\ \hline Taxable income & \\ \hline Income taxes payable (.20) & \\ \hline \end{tabular} Chapter 8 Comprehensive Problem \begin{tabular}{|c|l|l|l|} \hline Date & Accounts & Debit & Credit \\ \hline 12/31/2020 & & & \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline \end{tabular} Chapter 8 Comprehensive Problem \begin{tabular}{|l|l|} \hline Sales revenue & \\ \hline Operating expenses & \\ \hline Operating income & \\ \hline Expense for unfair practices & \\ \hline Income before taxation & \\ \hline Income tax expense & \\ \hline Net income & \\ \hline \end{tabular} Chapter 8 Comprehensive Problem \begin{tabular}{|l|l|l|l|} \hline \multicolumn{1}{|c|}{ Assets } & & \multicolumn{1}{|c|}{ Liabilities } \\ \hline Accounts receivable & & Accounts payable & \\ \hline Income tax receivable & & Income tax payable & \\ \hline \end{tabular} Chapter 8 Comprehensive Problem \begin{tabular}{|l|l|} \hline Income tax expense & \\ \hline Income before taxation & \\ \hline Effective income tax rate & \\ \hline \end{tabular}