Income Taxes Whitlock Corporation reported the following deferred tax assets and deferred tax liabilities as of December 31, 2018, based on an enacted tax rate for 2019 and beyond of 35 percent Deferred tax assets Warranty liability 21,700 Deferred tax liabilities Plant and Equipment 67,200 Net deferred tax liability $45,500 The following additional information is provided for 2019 Whitlock Corporation reports a pre tax financial income of $168,000 The pre tax financial income includes interest revenue of $14,000 on tax exempt securities Tax deductible depreciation for plant and equipment exceeded book depreciation by $56,000 in 2019 At December 31, 2019, the book value of Plant and Equipment exceeded its tax basis by $248,000 At December 31, 2018, the book value of Plant and Equipment exceeded its tax basis by $192,000 Warranty payments exceeded warranty expense in 2019 by $8,000 The total warranty liability at December 31, 2019 was $54,000 The total warranty liability at December 31, 2018 was $62,000 The corporate tax rate for 2019 is 35 During 2019 legislation was passed that lowered the enacted corporate tax rate for 2020 and beyond to 25 Required 1) Compute taxable income and income tax payable for 2019 2) Compute the deferred tax assets and deferred tax liabilities as of December 31, 2019 (i e prepare a chart similar to the one shown at the start of the problem) Deferred tax assets Warranty liability Deferred tax liabilities Plant and Equipment Net deferred tax liability 3) Prepare the journal entry (entries) to record income tax expense for 2019 4) What is the effective tax rate reported by Whitlock Corporation for 2019 Briefly explain why the effective tax rate is not equal to the 2019 statutory tax rate of 35

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 29, 2020

Income Taxes. Whitlock Corporation reported the following deferred tax assets and deferred tax liabilities as of December 31, 2018, based on an enacted tax rate

Income Taxes.

Whitlock Corporation reported the following deferred tax assets and deferred tax liabilities as of December 31, 2018, based on an enacted tax rate for 2019 and beyond of 35 percent.

Deferred tax assets:

Warranty liability 21,700

Deferred tax liabilities:

Plant and Equipment 67,200

Net deferred tax liability: $45,500

The following additional information is provided for 2019:

Whitlock Corporation reports a pre-tax financial income of $168,000.
The pre-tax financial income includes interest revenue of $14,000 on tax-exempt securities.
Tax-deductible depreciation for plant and equipment exceeded book depreciation by $56,000 in 2019. At December 31, 2019, the book value of Plant and Equipment exceeded its tax basis by $248,000. At December 31, 2018, the book value of Plant and Equipment exceeded its tax basis by $192,000.
Warranty payments exceeded warranty expense in 2019 by $8,000. The total warranty liability at December 31, 2019 was $54,000. The total warranty liability at December 31, 2018 was $62,000.
The corporate tax rate for 2019 is 35%. During 2019 legislation was passed that lowered the enacted corporate tax rate for 2020 and beyond to 25%.

Required:

1). Compute taxable income and income tax payable for 2019.

2). Compute the deferred tax assets and deferred tax liabilities as of December 31, 2019 (i.e. prepare a chart similar to the one shown at the start of the problem).

Deferred tax assets:

Warranty liability _________

Deferred tax liabilities:

Plant and Equipment _________

Net deferred tax liability: _________

3). Prepare the journal entry (entries) to record income tax expense for 2019.

4). What is the effective tax rate reported by Whitlock Corporation for 2019? Briefly explain why the effective tax rate is not equal to the 2019 statutory tax rate of 35%.