Question
Simpson Ltd was established on 1 July 2019 with share capital totalling $132,000. One year later at 30 June 2020 the trial balance of the
Simpson Ltd was established on 1 July 2019 with share capital totalling $132,000.
One year later at 30 June 2020 the trial balance of the company was as follows:
Account | Debit | Credit |
Cash | 24,000 | |
Accounts receivable | 37,500 | |
Allowance for doubtful debts | 200 | |
Interest receivable | 100 | |
Inventory | 20,000 | |
Prepaid insurance | 300 | |
Machinery (at cost) | 79,000 | |
Accumulated depreciation - Machinery | 5,900 | |
Vehicles | 11,000 | |
Accumulated depreciation - Vehicles | 100 | |
Goodwill | 45,000 | |
Accumulated impairment loss | 300 | |
Investments | 25,000 | |
Accounts payable | 15,000 | |
Rent payable | 6,000 | |
Provision for annual leave | 1,800 | |
Provision for services warranties | 600 | |
Share capital | 132,000 | |
Sales revenue | 650,000 | |
Interest revenue | 500 | |
Dividend revenue | 300 | |
Exempt income | 400 | |
Capital profit on sale of land | 700 | |
Cost of sales | 175,000 | |
Depreciation | 6,000 | |
Goodwill impairment loss | 300 | |
Salaries & wages | 120,000 | |
Annual leave | 1,800 | |
Rent | 72,000 | |
Insurance | 1,200 | |
Entertainment | 400 | |
Fines and penalties | 100 | |
Fringe benefits tax | 200 | |
Warranty expense | 600 | |
Doubtful debts | 200 | |
Other expenses | 194,100 | |
TOTAL | 813,800 | 813,800 |
Additional information:
- For tax purposes, depreciation on machinery is $14,000 and for vehicles $300, for the year ended 30 June 2020.
- Doubtful debts, annual leave and service warranties are expensed in the year ending 30 June 2020 but are not tax deductible for tax purposes until paid.
- Simpson Ltd has accrued annual leave entitlements of $1,800 in calculating net profit for the year ended 30 June 2020.
- Service warranty expense is only deductible as a tax deduction when claimed by customers.
- The company accrues doubtful debts expense as soon as it appears on a customers account as uncollectible. However, the bad debt is not allowable as a tax deduction until all avenues to collect the account have been exhausted.
- The tax rate is 30% and taxable income is $79,500.
Required:
- Complete the general journal entry to account for income tax.
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