Question
The following information was disclosed during the audit of Sheffield Inc. 1. Year Amount Due per Tax Return 2017 $125,000 2018 102,000 2. On January
The following information was disclosed during the audit of Sheffield Inc.
1. Year Amount Due per Tax Return
2017 $125,000
2018 102,000
2. On January 1, 2017, equipment costing $594,600 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life. For tax purposes, the company uses the elective straight-line method over a 5-year life. (Hint: For tax purposes, the half-year convention as discussed in Appendix 11A must be used.)
3. In January 2018, $219,300 is collected in advance rental of a building for a 3-year period. The entire $219,300 is reported as taxable income in 2018, but $146,200 of the $219,300 is reported as unearned revenue in 2018 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2019 and 2020.
4. The tax rate is 40% in 2017 and all subsequent periods. (Hint: To find taxable income in 2017 and 2018, the related income taxes payable amounts will have to be grossed up.)
5. No temporary differences existed at the end of 2016. Sheffield expects to report taxable income in each of the next 5 years.
a.
Determine the amount to report for deferred income taxes at the end of 2017, and indicate how it should be classified on the balance sheet.
The amount to report for deferred income taxes: b. Prepare the journal entry to record income taxes for 2017. |
c.
Draft the income tax section of the income statement for 2017, beginning with Income before income taxes. (Hint: You must compute taxable income and then combine that with changes in cumulative temporary differences to arrive at pretax financial income.)
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