Question

E18-18 LO 18.6 Calculating Intraperiod Income Taxes EyeBeam Corporation reports the following pretax accounting and taxable) income items during 2019: Income from continuing operations $ 90,000 Loss from operations of a discontinued division 110,000) Gain from the disposal of the discontinued division 25,000 of this amount, revenues are $320,000 and expenses are $230,000 Required: 1. Prepare the journal entry necessary to record the 2019 intraperiod income tax allocation in regard to the pre- ceding information. Assume a tax rate of 15% on the first $40,000 of income and a rate of 30% on income in excess of $40,000. 2. Prepare Eye Beam's 2019 income statement.

Answer 1

Income from Continuing Operations                                              $90,000

Loss from Operation of Discontinued division $ (10,000)

Gain from disposal of discontinued division $ 25,000

Net gain from Discontinued division                                              $15,000

EBT                                                                                                     $1,05,000

Tax rate Calculation of allocation to items above for showing in Intra Period Income Statement =

Tax on first $40,000 = 15% of 40000 = $6,000

Tax on Balance $ 65000 = 30% of 65000 = $19,500

Rate of tax = (6000+19500) / 105000 = 24.29%

Journal entry

Dr Income Tax Expense 25,500

Cr Income Tax Payable 25,500

Income Statement :

Income Statement for the period ended.... 320,000 Revenue from Operations Other Income (Interest Received) Total revenue - (U) Expenses 320,000 230,000 230,000 90,000 Total expenses - (11) Earnings before interest, tax, depreciation and amortization (EBITDA) (1) - (11) Depreciation and amortization expense Finance costs Profit/(loss) before exceptional items & tax Income Tax Expense Income before exceptional items Exceptional items Loss from Operations of Discontinued Division(Net of Tax) Gain from Disposal of Discontinued Division (Net of Tax) 90,000 21,861 68,139 -7,571 18,928 Profit/(loss) for the period 79,496