Solution 1-1:
Case Development | |||
Computation of Deferred Tax Liability at December 31, 2021 | |||
Year | Reversal of temporary differences - Installment income | Tax Rate | Deferred Tax Liability |
2022 | $270,000.00 | 20% | $54,000.00 |
2023 | $312,000.00 | 25% | $78,000.00 |
2024 | $252,000.00 | 25% | $63,000.00 |
Total | $834,000.00 | $195,000.00 | |
Case Development | |||
Computation of Deferred Tax Assets at December 31, 2021 | |||
Year | Reversal of temporary differences -Warranty Expense | Tax Rate | Deferred Tax Liability |
2022 | $85,000.00 | 20% | $17,000.00 |
2023 | $76,000.00 | 25% | $19,000.00 |
2024 | $68,000.00 | 25% | $17,000.00 |
Total | $229,000.00 | $53,000.00 |
Case Development | |
Computation of Taxable income and income tax for 2021 | |
Particulars | Amount |
Pretax financial Income | $983,000.00 |
Permanent differences: | |
Interest revenue on municipal bonds | -$23,000.00 |
Temorary differences: | |
Add: Warranty expense in books higher than as per tax | $229,000.00 |
Less: Installment income | -$834,000.00 |
Taxable Income | $355,000.00 |
Income tax (20%) | $71,000.00 |
Case Development | |||
Journal Entries | |||
Date | Particulars | Debit | Credit |
31-Dec-21 | Income tax expense Dr | $213,000.00 | |
Deferred Tax Assets Dr | $53,000.00 | ||
To Income Tax Payable | $71,000.00 | ||
To Deferred tax liability | $195,000.00 | ||
(Being current income tax and deferred taxes) |
Solution 1-2:
Case's 2021 net income = Pretax income - Income tax expense = $983,000 - $213,000 = $770,000
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Case Development began operations in December 2021. When property is sold on an installment basis, Case...
Case Development began operations in December 2021. When property is sold on an installment basis, Case recognizes Installment Income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2021 Installment Income was $906,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2022-2024 are as follows: 2022 2023 2024 $310, Bee 328, eee 268, eee 20% 25 25 Case also had...
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