Question
The following information pertains to Hemsworth Inc.: The Allowance for Doubtful Accounts (bad debts) as of December 31, Year 1 was $11,000. During Year 2,
The following information pertains to Hemsworth Inc.:
The Allowance for Doubtful Accounts (bad debts) as of December 31, Year 1 was $11,000. During Year 2, uncollectible accounts totaling $5,000 were written off. An expense for bad debts of $15,000 was recognized at the end of Year 2, resulting in a Year 2 ending balance in Allowance for Doubtful Accounts of $21,000.
At the end of Year 2, there were net unrealized gains on trading securities of $8,000. There were no unrealized gains/losses on trading securities at the beginning of Year 2.
Hemsworth Inc. uses straight-line depreciation for GAAP and MACRS for income tax purposes. Accumulated depreciation and Year 2 depreciation expense are summarized below:
GAAP Tax
Accumulated Depreciation, end of Year 1 $1,314,000 $2,018,000
Year 2 Depreciation Expense 196,000 259,000
Accumulated Depreciation, end of Year 2 $1,510,000 $2,277,000
- Other miscellaneous book-tax differences are as follows:
- Non-deductible meals and entertainment expenses $12,000
- Tax-exempt interest income $15,000
Ending Year 1 net deferred taxes were equal to a $50,000 net deferred tax liability, comprised of deferred tax assets equal to $100,000 and deferred tax liabilities equal to $150,000.
Pre-tax accounting income in Year 2 equals $678,000.
Hemsworths tax rate is 20%.
Required:
1. Record the journal entry necessary to recognize income tax expense for Hemsworth Inc. for Year 2.
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