Question

I need a little assistance with the last section please.  

The following information is available for Marin Corporation for 2016 (its first year of operations). 1. Excess of tax depreciation over book depreciation, $36,800. This $36,800 difference will reverse equally over the years 2017-2020. 2. Deferral, for book purposes, of $20,200 of rent received in advance. The rent will be recognized in 2017. 3. Pretax financial income, $310,100. 4. Tax rate for all years, 40%. Compute taxable income for 2016. Taxable income 293500

Answer 1

Answer:

1. Compute taxable income for 2016.

Computation:

                Taxable income = $293500

                Workings:

                Pretax Income for 2016                                                 = $310100

                Less: Excess of tax depn over book depn                              = ($36800)

                Add: Rent received in advance                                 = $20200

                Taxable Income                                                                                = $293500

1. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016.

Solution:

                Journal Entry:

                Income Tax Expenses                    Dr           $124040

                Deferred Tax Asset                         Dr           $8080

                                Income Tax Payable                        Cr            $117400

                                Deferred Tax Liability                     Cr            $14720

                Working Notes:

                Income Tax Payable = Taxable Income * Tax rate = $293500* 40% = $117400

                Deferred Tax Liability = Excess of tax depreciation * Tax rate = $36800* 40% = $14720

                Deferred Tax asset = Advance rant * Tax rate = $20200 * 40% = $8080

                Income tax Expenses = Pretax financial income * Tax rate = $310100* 40% = $124040

1. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $317800.

Solution:

                Journal Entry:

                Income Tax Expenses                    Dr           $131520

                Deferred Tax Liability                     Dr           $3680

                                Income Tax Payable                        Cr            $127120

                                Deferred Tax Asset                         Cr            $8080

                Working Notes:

                Income Tax Payable = Taxable income * Tax rate = $317800* 40% = $127120

                Deferred tax asset = $8080 since all revenue recognized in 2017

                Deferred tax liability = $14720/ 4 years = $3680