Question

Cut A A Calibri (Body) General 11 Wrap Text ab Copy A $ Paste В I U Merge & Center Format fix 15 A В C E G 1 The corporation had the following income and expense items for the 2 corresponding tax years: 3 4 2020 2021 5 Sales Revenue 500,000 500,000 Fixed Asset Purchase 3 year life for 6 book depreciation, 5 year life for 7 tax depreciation (Straight line) 8 40,000 50,000 15,000 9 Tax-Exempt Income 14,000 10,000 10 Entertainment Expenses 5,000 40,000 11 Advertising Expenses 40,000 220,000 12 Wage expenses 200,000 Income Tax Rate 13 10% 10% 14 15 (a) Calculate book income for 2020 (3 points) 16 (b) Calculate taxable income for 2020 (3 points) (c) Make the required journal entries for the 2020 financial statements (6 points) 17 18 (d) Calculate the book income for 2021 (3 points) (e) Calculate taxable income for 2021 (3 points) 19 20 (d) Make the required book journal entries for the 2021 financial statements (7 points) 21 22

Answer 1

	Computation of Book Income		2020	2021
	Particulars		Amount	Amount
	Sales Income		5,00,000	5,00,000
	Exempt Income		15,000	14,000
	Total Income	A	5,15,000	5,14,000
Less :	Deprecation		40,000	50,000
	(In absence of information , we assume 40000 and 50000 as the depreciation both of income tax and book purpose)
	Entertainment Exp		10,000	5,000
	Wage Expense		2,00,000	2,20,000
	Total Expenses	B	2,50,000	2,75,000
	Book Profit	C= A-B	2,65,000	2,39,000
Tax exempt income will not be considered while calculating Taxable income
	So , Book Profit	D = C	2,65,000	2,39,000
Less :	Exempt Income	E	15,000	14,000
	Net Taxable Income	F = D-E	2,50,000	2,25,000
	Tax Rate	G	10%	10%
	Tax Payable	I = FxG	25000	22500
Journal Entries
Year	Particulars		Debit	Credit
2020	Depreciation A/C (Profit/Loss Head)	Dr	40,000
	To Fixed Assets			40,000
2021	Depreciation A/C (Profit/Loss Head)	Dr	2,00,000
	To Fixed Assets			2,00,000