Question

Omaha Inc. reports $156,000 financial income for 2018, before adjusting the following differences for tax reporting purpose. 1. Pollution fine of $25,000 was paid and recorded. 2. Installment sales result in gross profit recognized for financial reporting purposes in excess of gross profit recognized for tax purposes by $13,000. 3. Warranty expenses deducted for financial reporting exceeded warranty costs deducted for income taxes by $10,500. 4. Percentage depletion deducted for income taxes exceeded cost depletion deducted for financial reporting by $32,500. The income tax rate is 25% for 2018, and 20% rate for 2019 and future years. 1. Compute the Company's taxable income and income tax payable for 2018. 2. Prepare the income tax journal entries of the Company for 2018.

Answer 1

Answer(1) Calculation of Company's Taxable Income and Income tax Payable for 2018 Pretax Financial income $156,000 Add: Permanent difference 25,000 Pretax Financial Income Adjusted $181,000 Add/Less : Temporary Difference Warranty 10,500 Installment Sales (13,000) Percentage Depletion (32,500) Taxable income $146,000 Tax Rate 25% Income tax Payable $36,500

Answer(2) Journal Entries - Current Journal Entry Date Accounts Title December 31, 2018 Income tax expense Income tax payable Credit Debit $36,500 $36,500 Credit Journal Entries - Deffered Journal Entry Date Accounts Title December 31, 2018 Income tax expense Deffered Tax Asset-Warranty Deffered Tax Liability - Installment Sales Deffered Tax Liability - Percentage Depletion Debit $7,000 2,100 $2,600 6,500 20% of $10,500 $2,100 Working Note: Deffered Tax Asset - Warranty Deffered Tax Liability -Installment Sales Deffered Tax Liability - Percentage Depletion 20% of $13,000 $2,600 20% of $32,500 $6,500