Question

The following information is available for Ivanhoe Corporation for 2020.

1.		Depreciation reported on the tax return exceeded depreciation reported on the income statement by $122,000. This difference will reverse in equal amounts of $30,500 over the years 2021–2024.
2.		Interest received on municipal bonds was $11,000.
3.		Rent collected in advance on January 1, 2020, totaled $63,900 for a 3-year period. Of this amount, $42,600 was reported as unearned at December 31, 2020, for book purposes.
4.		The tax rates are 40% for 2020 and 35% for 2021 and subsequent years.
5.		Income taxes of $331,000 are due per the tax return for 2020.
6.		No deferred taxes existed at the beginning of 2020.

(a) Compute taxable income for 2020.

(b) Compute pretax financial income for 2020.

(c) Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2020 and 2021. Assume taxable income was $932,000 in 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(d) Prepare the income tax expense section of the income statement for 2020, beginning with “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

(a) Compute taxable income for 2012. B = C, C/B = A A = Net Income, B = Tax Rate, C = Income Tax, A A x 40% = $331,000 $331,000 / 40% = A A = $827,500 = Taxable income for 2012 (b) Compute pretax financial income for 2012. Taxable income from part (a) Excess depreciation Municipal interest Unearned rent Pretax financial income for 2012 $827,500 122,000 11,000 (42,600) $917,900 (c) Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2012 and 2013. Assume taxable income was $932,000 in 2013. 2012 358,790 14,910 Income Tax Expense ($331,000+ $42,700 - $14,910) Deferred Tax Asset ($42,600 x 35%) Income Tax Payable ($827,500 x 40%) Deferred Tax Liability ($122,000 ~ 35%) 331,000 42,700 2013 322,980 10,675 Income Tax Expense ($326,200 + $7,455 - $10,675) Deferred Tax Liability [($122,000 / 4) x 35%] Income Tax Payable ($932,000 x 35%) Deferred Tax Asset [($42,600 / 2) × 35%] | 326,200 7,455 (d) Prepare the income tax expense section of the income statement for 2012, beginning with "Income before income taxes." $917,900 Income before income taxes Income tax expense Current Deferred ($42,700 - $14,910) Net income $331,000 27,790 358,790 $559,110