Question

i need help in this hw please

Homework Assignment (Chapter 19: Accounting for Income Taxes) Johnny Bravo Ltd. began operations in 2019 and has provided the following information. 1. Pretax financial income for 2019 is £100,000. 2. The tax rate enacted for 2019 and future years is 40%. 3. Differences between the 2019 income statement and tax return are listed below. a. Warranty expense accrued for financial reporting purposes amounts to £5,000. Warranty deductions per the tax return amount to £2,000. b. Gross profit on construction contracts using the percentage of completion method for books amounts to £92,000. Gross profit on construction contracts for tax purposes amounts to £62,000. c. Depreciation of property, plant, and equipment for financial reporting purposes amounts to £60,000. Depreciation of these assets amounts to £80,000 for the tax return. d. A £3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income. e. Interest revenue earned on an investment in tax-exempt government bonds amounts to £1,400. 4. Taxable income is expected for the next few years. Instructions 1. Compute taxable income for 2019. 2. Compute the deferred taxes (DTA & DTL) at December 31, 2019, that relate to the temporary differences described above. 3. Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2019. 4. Draft the income tax expense section of the income statement, beginning with "Income before income taxes." 5. Assume that in 2020 Johnny Bravo reported a pretax operating loss of £100,000. There were no other temporary or permanent differences in tax and book income for 2020. Prepare the journal entry to record income tax expense for 2020. Johnny Bravo expects to return to profitability in 2021.

Answer 1

1. Computation of Taxable income and Tax liability for 2019: Description 2019 100000.00 -1400 Pre-tax accounting income Less: Permanent difference [Municipal bonds are exempt from federal and state income taxes.] Add: Temporary difference Taxable Income Tax rate (B) Income tax payable (A x B) 3500.00 102100.00 40% 40840.00 Therefore, the Taxable income for the year is £102100

2. Computation of deferred taxes for 2019: Description 2019 0.00 -3000.00 Opening Balance of (DTA) DTL Add (Less): Warranty Expenses (£5,000-£2,000) Profit on Construction Contracts (£92,000-£62,000) Depreciation of PPE (£60000-£80000) -30000.00 20000.00 DTA 13000.00 40% Tax rate (B) Deferred tax Assets (A x B) 5200 Therefore, the deferred tax asset for the year is £13000

3. Prepare the journal entry to record the income taxes for 2019 in the following manner: Credit Date 2019 Debit 35640 5200 40840 Account Title and Explanation Income tax expense Deferred tax Asset Income tax payable (To record the income tax expense, the deferred income taxes, and the income taxes payable for 2019)

4. Determine the net income for 2019 in the following manner: Amount (£) 100000 Less: Description Income before income taxes Income tax expense Current tax expense Deferred tax Assets 40840 -5200 -35640 Net income 64360 Therefore, the net income for the year is £64360