Question

Teal Company reports pretax financial income of $76,100 for 2020. The following items cause taxable income to be different than pretax financial income.

1.Depreciation on the tax return is greater than depreciation on the income statement by $16,700.2.Rent collected on the tax return is greater than rent recognized on the income statement by $22,700.3.Fines for pollution appear as an expense of $11,100 on the income statement.

Teal’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2020.

6:29 FOR Compute taxable income and income taxes payable for 2020 Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020. (Credit account tities are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account tities and enter for the amounts.) @ Prepare the income tax expense section of the income statement for 2020, beginning with the line "Income before income taxes." (Enter negative amounts using elther a negative sign preceding the number eg. 45 or parenthesese.. (454 Compute the effective income tax rate for 2020. (Round answer to 1 decimal places. e.. 25.5%) Bolo

Answer 1

1) Compute Taxable income and Income taxes payable for 2020
Taxable Income = $ 93,200
Income Taxes Payable = $ 27,960
Explanation :
Particulars	Amount($)
Pretax Financial income for 2020	$ 76,100
Less: Excess depreciation per Tax return	($16,700)
Add: Excess Rent collected over Rent Earned	$ 22,700
Add: Non deductible Fines	$ 11,100
Taxable Income For 2020	$ 93,200
Taxable Income For 2020	$ 93,200
Tax rate	30%
Income Taxes Payable      {$93,200*30% }	$ 27,960

General Journal	Debit	Credit
Income tax expenses (27960+5010-6810)	$ 26,160
Deferred Tax asset ($ 22,700 *30%)	$ 6,810
Income Tax Payable		$ 27,960
Deferred tax liability($16,700*30%)		$ 5,010
(To record income tax expenses , Deferred income taxes
and income tax payable for 2020 )

Teal Company
Income Statement (Partial )
For the year ended December 31,2020
Income before income taxes		$ 76,100
Less: Income tax expense
Current	$ 27,960
Deferred ($ 6,810 - $ 5,010 )	($ 1,800)
		($ 26,160)
Net income / (Loss )		$ 49,940

Compute the Effective Income tax rate for 2020 :

Effective Income Tax rate = 34.4 %

Explanation :

Effective Income Tax rate = Income tax expense / Income Before income Taxes

Effective Income Tax rate =   $ 26,160 / $ 76,100

Effective Income Tax rate =   34.4 % (Rounded to 1 decimal )