Question

(c) Problem 2. The following differences between financial and taxable income were reported by Dider Corporation for the year: (a) Excess of tax depreciation over book depreciation $10,000 (b) Interest revenue on municipal bonds 9,000 Excess of estimated warranty expense over actual expenditures 54,000 (d) Rent of next year paid 12.000 Fines paid 30,000 (t) Excess of income reported under percentage-of-completion accounting for financial reporting over completed-contract accounting used for tax reporting. 45,000 Interest on indebtedness incurred to purchase tax-exempt securities 3,000 (h) Unrealized losses on marketable securities recognized for financial reporting 18,000 Instructions (1) Assume that Dider Corporation had pretax accounting income [before considering items (a) through (h)] of $900,000 for the current year. Compute the taxable income for the current year. (2) Make journal entries to record income tax expense for the year assuming that the tax rate is 40% this year and 50% starting next year. (3) Prepare the income tax expense section of the income statement, beginning with "Income before income taxes." (4) Indicate how deferred income taxes should be presented on the balance sheet.

Answer 1

Answer-1:

Computation of taxable income for the current year
Financial Income	$      9,00,000
less excess depreciation	-10000
less interest revenue municipal bond	-9000
less excess income recorded	-45000
add warranty expenses	54000
add unearned rent	12000
add amortization of goodwill	30000
add interest on exempt securities	3000
add unrealized losses	1800
Taxable income	$      9,36,800