Question

Problem 2: ABC, Inc. reported pretax financial income of $80,000 for its first year of operations. The tax rate for the current and future years is 25%. The following items caused financial income and taxable income to differ: A. Depreciation on the tax return is greater than the depreciation on the income statement by $10,000. B. Rent collected on the tax return is greater than rent recognized on the income statement by $18,000. C. Interest of $15,000 was collected on municipal bonds. Required: 1. Compute taxable income: $ 2. Prepare the journal entry to record income tax: 3. Show the income statement presentation beginning with Income before Taxes. Income Statement

Answer 1

1. As depreciation is an expense shown greater in the tax return statement, that is the amount 10000$ is unnecessarily deducted which is to be added for correct income statement.

Compute taroble acome 1. Pee tox Finaacial acome Reported 80000 Deprciotion Reot collected 0000 (18,000) 1 Iotereat collected 15000 Taxable 4 come. 87.000 $ Notes given below are Jouraal Eotry to ocomc tax eCord 2. Anome tax Al DY 21750 To cash /Baok Alc 21750 CBcing tax is paid) Ancome statcment 3 S7,000 $ i's the correctncome taxable So au Easnings BeforeItercat & tax Ce25) 87000 (21 750) Tax 6g 250 $ Earnings after tax the funds of share bolden 65,250 $ ase

2.Rent collected is an income which is shown greater, the amount 18000$ and to be deducted.

3. Interest collected is an income and to be added.