Question
Wassup Construction Ltd. (WCL) , a publicly accountable enterprise, had the following tax-related amounts at the beginning of 2014: The Construction in Process account =
Wassup Construction Ltd. (WCL) , a publicly accountable enterprise, had the following tax-related amounts at the beginning of 2014:
The Construction in Process account = $900,000.
The gross profit on incomplete jobs = $300,000.
Equipment, net of accumulated depreciation of $100,000 = $850,000.
UCC of Equipment = $750,000.
Information related to the year 2014 was as follows:
Accounting income before tax = $1,800,000
Income tax installment for 2014 paid on July 5, 2014 = $100,000
The gross profit on incomplete jobs as at December 31, 2014 = $250,000.
Items included in arriving at income before tax:
Depreciation expense on owned equipment = $300,000
Equity pickup recorded from investment in affiliated company = $128,000
Dues paid for Tennis Club membership = $3,000
Penalty paid for late filing of government forms = $5,000.
Additional information:
Capital Cost Allowance on owned equipment = $375,000. The timing difference will reverse evenly over 3 years.
All jobs are profitable and expected to be completed by end of 2015.
The income tax rate for 2014-2015 is enacted at 40%. The enacted income tax rate for 2016 and future years is 30%. The 2016 rate was enacted in late December 2014. The company follows a December 31 year-end for financial reporting purposes.
Additional Info: The bookkeeper provided you with the following tax-related accounts and balances from the unadjusted trial balance as at December 31, 2014:
Account Name Account Balance Debit or Credit Balance
Construction in process $600,000 Debit
Income tax payable $720,000 Credit
Deferred Tax Liability $160,000 Credit
Income tax expense $820,000 Debit
Equipment $950,000 Debit
Accumulated Depreciation - equipment $400,000 Credit
Required: (round to the nearest dollar)
Calculate income tax payable as of December 31, 2014.
Prepare all tax-related journal entries (if necessary) to correct the balances reported above for 2014.
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