Question

Curry Company reports pretax accounting (book) income of $300,000 for 2019. The items below (included in accounting income, when applicable, in accordance with U.S. GAAP) cause taxable income to be different than pretax accounting (book) income. 1. Depreciation on the tax return is $70,000; straight line depreciation on the books is $40,000. 2. Rent revenue of $10,000 collected in advance (cash basis) will not be earned until 2020. 3. Fines for pollution appear as an expense of $32,000 on the income statement 4. Life insurance proceeds received on key executive $12,000 5. Bad debts estimated for accounting are $25,000, actual AR written off for tax purposes are $20,000. Curry's tax rate is 20% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2019. Instructions (a) Compute taxable income and income taxes payable for 2019. (On page 2) (b) Prepare the journal entry to record income tax expense, any deferred tax accounts and income taxes payable for 2019. (On page 2) (C) Prepare the income tax expense section of the income statement for 2019. beginning with the line "2019 pretax accounting income." (Show below) (d) Show the relevant sections of the balance sheet for the related tax accounts (Show below) FOR PARTS (a) AND (b) ABOVE, SHOW ALL OF YOUR WORK ON THE NEXT PAGE AND YOU MUST FOLLOW THE FORMAT THAT I HAVE PREVIOUSLY USED. Do parts (c) and (d) below AFTER you complete parts (a) and (b). (c) Income Statement Section (d) Balance Sheet Sections

Answer 1

A. Computation of Taxable income and Income tax Payable

Computation of Taxable Income :	Amount ($)	Amount ($)
Pretax Income as per books		30000
Add :
Depreciation as per books	40000
Fines for pollution	32000
Bad Debts estimated	25000	97000
Less :
Rent Revenue	-10000
Life Insurances Proceeds on key executive	-12000	-22000
Less :
Depreciation on the tax return	-70000
Actual AR written off	-20000	-90000
Taxable Income		15000
Current Tax Rate		20%
Income Tax Payable @ 20% on Taxable Income		3000

B . Journal entry for Income Tax expense and deferred tax

Income Tax

Income Tax expenses -----------Dr    $3000

Income Tax payable -----------Cr    $3000

Deferred Tax

Deferred Tax Assets -----------Dr    $7000

Deferred Tax Income -----------Cr    $7000

C. Income statement section

Computation of Taxable Income :	Amount ($)	Amount ($)
Pretax Income as per books		30000
Add :
Depreciation as per books	40000
Fines for pollution	32000
Bad Debts estimated	25000	97000
Less :
Rent Revenue	-10000
Life Insurances Proceeds on key executive	-12000	-22000
Less :
Depreciation on the tax return	-70000
Actual AR written off	-20000	-90000
Taxable Income		15000

D.  Balance sheet section

Income Tax Payable = Current liabilities and Provisions

Deferred Tax Assets = Non Current Assets