Question

I need help with each adjusting entry and an explanation of how to find each one:

ACC 309 Final Project Scenario

Peyton Approved Overview Imagine that you are working as a financial accountant for Peyton Approved, and you have been charged with revising its financial information. The company has experienced tremendous growth in the past three years, and it is now a well-known bakery chain for pet products. They have become a publicly traded company and have several locations that they deliver to regionally.

Peyton Approved Financial Information

Comprehensive income items

 Marketable securities on the balance sheet at a cost of $5,500,000 are available-for-sale

 Market value at the balance sheet date is $5,235,000

Prepare the adjusting entry to record the unrealized loss and include in comprehensive income Tax information and implications

 $1,500 in meal and entertainment expenses show as a permanent difference for tax.

Prepare the necessary adjusting entry.

 The company uses straight line depreciation for book and MACRS depreciation for the tax return

 MACRS depreciation was $209,301 higher than book.

Prepare the adjusting entry for the deferred tax.

 There have been recent tax structure changes that could impact the company. Peyton Approved has been a C Corp since the beginning of these changes. Peyton provides for taxes at 25% of pretax income (20% Federal, 5% state).

Answer 1

$1,500 in meal and entertainment expenses being ,permanent difference not going to be reversed (No deferred tax asset/liability created).

Defrerred Tax asset on MACRS Depn.(209301*25%)

52325.25

(Results in Lower book income ,than tax income & hence lower tax liability than that recorded in books for financial reporting)

Deferred tax liability on Unrealized Gain/Loss(265000*25%)

66250

(Results in more book income than tax income & hence higher tax liability than that recorded in books for financial reporting)

Net deferred tax liability

13924.75

So,

The required Journal entry will be	Debit	Credit
Deferred Tax Expense	13924.75
Deferred Tax Liability		13924.75

Note : $5500000 – $5235000 = $265000.