The following information was disclosed during the audit of Munter Inc.
1. Amount Due
Year ....per Tax Return
2008 .......$140,000
2009 ......112,000
2. On January 1, 2008, equipment costing $400,000 is purchased. For financial reporting purposes, the company uses straight-line depreciation, assuming no salvage value, 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, use the half-year convention; see Chapter 10.)
3. In January 2009, $225,000 is collected in advance rental of a building for a 3-year period. The entire $225,000 is reported as taxable income in 2009, but $150,000 of the $225,000 is reported as unearned revenue in 2009 for financial reporting purposes. The remaining amount of unearned revenue is to be earned equally in 2010 and 2011.
4. The tax rate is 40% in 2008 and all subsequent periods. (Hint: To find taxable income in 2008 and 2009 the related income tax payable amounts will have to be “grossed up.”)
5. No temporary differences existed at the end of 2007. Munter expects to report taxable income in each of the next 5 years.
Instructions
(a) Determine the amount to report for deferred income taxes at the end of 2008, and indicate how it should be classified on the balance sheet.
(b) Prepare the journal entry to record income taxes for 2008.
(c) Draft the income tax section of the income statement for 2008 beginning with “Income before income taxes.”
(d) Determine the deferred income taxes at the end of 2009, and indicate how they should be classified on the balance sheet.
(e) Prepare the journal entry to record income taxes for 2009.
(f) Draft the income tax section of the income statement for 2009, beginning with “Income before income taxes.”