Question

part of this isnposted somewhere else on here but it os not fully answered can someone help reanswer this one! thank you

Complete the following questions. In addition to answering the items below, you must submit an analysis of the assignment. Analyze the specific outcomes and write an analysis directed toward the team at Geyser Company describing what the numbers mean and how they relate to the business. Submit journal entries in an Excel file and written segments in an MS Word document. For written answers, please make sure your responses are well- written, formatted per CSU-Global Guide to Writing and APAc and have proper citations, where applicable. Geyser Company began operations in 2017 and has provided the following information 1. Pretax financial income for 2017 is $200,000. 2. The tax rate enacted for 2017 and future years is 40%. 3. Differences between the 2017 income statement and tax return are listed below: a Warranty expense accrued for financial reporting purposes amounts to $10,000. Warranty deductions per the tax return amount to $4,000. b. Gross profit on construction contracts using the percentage of completion method for book purposes amounts to $184,000. Gross profit on construction contracts for tax purposes amounts to $124.000. 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 municipal bonds amounts to $1,400. 4. Taxable income is expected for the next few years. Provided with this assignment is the Excel Workbook containing the spreadsheets you will need for this exercise. Use the spreadsheet Journal Entries to prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2017 Draft the income tax expense section of the income statement, beginning with "Income before income taxes.

Answer 1

Understanding the Terminology:

Income Tax Payable : Tax on Accounting Income

Income Tax expense : Tax on Taxable Income.

Deferred Tax : Deferred tax is created when there is a difference between taxable income and accounting income.  Deferred tax is the tax effect of timing differences. Timing differences are the differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods.

If accounting profit is greater than taxable profit, create deferred tax liability. If accounting profit is less than taxable profit, create deferred tax asset. If there is loss in the books of accounts but profit as per income tax and the difference (e.g. disallowance of exp.) subject to adjustments in future, create deferred tax asset. If there is profit in the books of accounts but loss as per income tax and carry forward of loss is allowed, create deferred tax liability.

Deferred tax will not arise if there is PERMANENT differences in the accounting income and taxable income

INCOME TAX EXPENSE

	Income tax Expense	Amount($)
	Income before income taxes	2,00,000
(a)	Add: Warranty expense as per Financials	10,000
	Less: Warranty expense as per Tax return	-4,000
(b)	Less : Gross profit on Construction contracts as per Finacials	-1,84,000
	Add : Gross profit on Construction contracts as per Tax return	1,24,000
©	Less: Depreciation as per Tax return	-80,000
	Add :Depreciation as per Financials	60,000
(d)	Add: Fine paid for violation of Pollution laws	3,500
€	Less : Tax exempt interest revenue earned on an investment(assumed that this revenue included in Income before Income taxes)	-1,400
	Taxable income	1,28,100
	Income Tax @ 40 %	40%
	Income Tax expense	51,240

Income Tax Payable	Amount($)
Income before income taxes	2,00,000
Add: Fine paid for violation of Pollution laws	3,500
Less : Tax exempt interest revenue earned on an investment(assumed that this revenue included in Income before Income taxes)	-1,400
	2,02,100
Income Tax @ 40 %	40%
Income Tax Payable	80,840

JOURNAL ENTRY
	Debit($)	Credit($)
Income Tax expense	51,240
Deferred Tax Expense	29,600
Income Tax Payable		80,840