Question

Sunland Company reports pretax financial income of $72,000 for 2017. The following items cause taxable income to be different than pretax financial income. 1. Depreciation on the tax return is greater than depreciation on the income statement by $14,700. 2. Rent collected on the tax return is greater than rent recognized on the income statement by $24,200. 3. Fines for pollution appear as an expense of $11,900 on the income statement. Sunland’s tax rate is 40% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2017.

Compute taxable income and income taxes payable for 2017. Taxable income $ Income taxes payable $ SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT

Prepare the income tax expense section of the income statement for 2017, beginning with the line “Income before income taxes.” (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Sunland Company Income Statement (Partial) December 31, 2017For the Year Ended December 31, 2017For the Quarter Ended December 31, 2017 CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues $ CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues     Current    Deferred    Dividends    Expenses    Income before Income Taxes    Income Tax Expense    Net Income / (Loss)    Retained Earnings, January 1    Retained Earnings, December 31    Revenues    Total Expenses    Total Revenues     $     Current    Deferred    Dividends    Expenses    Income before Income Taxes    Income Tax Expense    Net Income / (Loss)    Retained Earnings, January 1    Retained Earnings, December 31    Revenues    Total Expenses    Total Revenues     CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues $ SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT

Compute the effective income tax rate for 2017. (Round answer to 1 decimal places, e.g. 25.5%.) Effective income tax rate %

Answer 1

Please find below table useful to compute desired results: -

C D Deferred Assets Liability 14700 А B 1 Particulars 2017 2 Income 3 Financial Income (US GAAP) 72000 4 Excess tax depreciation 14700 5 Excess Rent collected 24200 6 Fines (permanent) 11900 7 Taxable Income (IRS) =B3-B4+B5+B6 8 Tax Rate =40/100 9 Income Tax =B7*B8 24200 =-C5 =40/100 =C7*C8 =D4 =40/100 =D7*D8 =D9 16 =B3 Income Tax Expense =B9+C9+D9 Deferred Tax Asset =-C9 Deffered tax liability Income tax payable =B9 15 (to record income tax payable, income tax expense and deferred tax) Income Statement 17 Income before taxes: - 18 Income tax expense-2017 =B9 19 Income tax expense-Deferred =C19-B18 =C11 20 Net income =C17-C19 21 22 Tax Provision =C19 23 GAAP income =B3 24 Effective rate =B22/B23

A S 1 Particulars 2 Income 3 Financial Income (US GAAP) 4 Excess tax depreciation 5 Excess Rent collected 6 Fines (permanent) 7 Taxable Income (IRS) 8 Tax Rate 9 Income Tax S 2017 Deferred Assets Liability 72,000.00 14,700.00 $14.700.00 24,200.00 $ 24,200.00 11.900.00 93,400.00 $ (24.200.00 $ 14,700.00 40.00% 40.00% 40.00% 37.360.00 S (9.680.00) $ 5.880.00 S Income Tax Expense $33.560.00 Deferred Tax Asset $9.680.00 Deffered tax liability $5.880.00 Income tax payable $37,360.00 (to record income tax payable, income tax expense and deferred tax) Income Statement 17 Income before taxes: - $ 72,000.00 18 Income tax expense-2017 S 37.360.00 19 Income tax expense-Deferred S (3,800.00 $ 33.560.00 20 Net income $ 38,440.00 16 22 Tax Provision 23 GAAP income 24 Effective rate 33,560.00 72,000.00 46.61%