Case Development began operations in December 2018. 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. 2018 installment income was $680,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2019–2021 are as follows:
2019 | $ | 166,000 | 30 | % |
2020 | 290,000 | 40 | ||
2021 | 224,000 | 40 | ||
Case also had product warranty costs of $88,000 expensed for
financial reporting purposes in 2018. For tax purposes, only the
$24,000 of warranty costs actually paid in 2018 was deducted. The
remaining $64,000 will be deducted for tax purposes when paid over
the next three years as follows:
2019 | $ | 21,600 | 30 | % |
2020 | 26,600 | 40 | ||
2021 | 15,800 | 40 | ||
Pretax accounting income for 2018 was $930,000, which
includes interest revenue of $18,000 from municipal bonds. The
enacted tax rate for 2018 is 30%.
Required:
1. Assuming no differences between accounting
income and taxable income other than those described above, prepare
the appropriate journal entry to record Case’s 2018 income
taxes.
2. What is Case’s 2018 net income?
1. record 2018 income taxes.
2. What is Case’s 2018 net income?
Solution 1:
Case Development | |
Computation of Taxable income and income tax for 2018 | |
Particulars | Amount |
Pretax financial Income | $930,000.00 |
Permanent differences: | |
Interest revenue on municipal bonds | -$18,000.00 |
Temporary differences: | |
Add: Warranty expense in books higher than as per tax | $64,000.00 |
Less: Installment income | -$680,000.00 |
Taxable Income | $296,000.00 |
Income tax (30%) | $88,800.00 |
Case Development | |||
Computation of Deferred Tax Liability at December 31, 2018 | |||
Year | Reversal of temporary differences - Installment income | Tax Rate | Deferred Tax Liability |
2019 | $166,000.00 | 30% | $49,800.00 |
2020 | $290,000.00 | 40% | $116,000.00 |
2021 | $224,000.00 | 40% | $89,600.00 |
Total | $680,000.00 | $255,400.00 |
Case Development | |||
Computation of Deferred Tax Assets at December 31, 2018 | |||
Year | Reversal of temporary differences -Warranty Expense | Tax Rate | Deferred Tax Liability |
2019 | $21,600.00 | 30% | $6,480.00 |
2020 | $26,600.00 | 40% | $10,640.00 |
2021 | $15,800.00 | 40% | $6,320.00 |
Total | $64,000.00 | $23,440.00 |
Case Development | |||
Journal Entries | |||
Date | Particulars | Debit | Credit |
31-Dec-18 | Income tax expense Dr | $320,760.00 | |
Deferred Tax Assets Dr | $23,440.00 | ||
To Income Tax Payable | $88,800.00 | ||
To Deferred tax liability | $255,400.00 | ||
(Being current income tax and deferred taxes) |
Solution 2:
Net income = Pretax income - Income tax expense = $930,000 - $320,760 = $609,240
Case Development began operations in December 2018. When property is sold on an installment basis, Case recognizes insta...
Case Development began operations in December 2018. 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. 2018 installment income was $680,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2019–2021 are as follows: 2019 $ 166,000 30 % 2020 290,000 40 2021 224,000 40 Case also had product...
Case Development began operations in December 2018. 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. 2018 installment income was $720,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2019–2021 are as follows: 2019 $ 174,000 30 % 2020 310,000 40 2021 236,000 40 Case also had product...
Case Development began operations in December 2018. 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. 2018 installment income was $720,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2019-2021 are as follows: 2019 $174,000 310,000 236,000 40 30% 2020 2021 40 Case also had product warranty costs...
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 $636,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2022–2024 are as follows: 2022 $ 160,000 20 % 2023 268,000 25 2024 208,000 25 Case also had product...
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 $852,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2022–2024 are as follows: 2022 $ 280,000 20 % 2023 316,000 25 2024 256,000 25 Case also had product...
Case Development began operations in December 2018. 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. 2018 installment income was $610,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2019-2021 are as follows: 2019 $152,000 3e% 2020 255,00e 40 2021 203,000 40 Case also had product warranty costs...
Case Development began operations in December 2018. When property is sold on an installment basis, Case recognizes installment financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2018 installment income was $640,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2019-2021 are as follows: 2019 2020 2021 $140,000 30% 350,000 40 150,000 40 Pretax accounting income for 2018 was $902,000, which...
Case Development began operations in December 2018. 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, 2018 installment income was $790,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2019-2021 are as follows: 2019 2020 2021 $188,000 301 345,000 40 257.000 40 Case also had product warranty costs...
Case Development began operations in December 2018. 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. 2018 installment income was $400,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2019-2021 are as follows: 2019 $ 80,000 20% 2020 230,000 30 2021 90,000 30 Pretax accounting income for 2018...
Case Development began operations in December 2018. 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. 2018 installment income was $400,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2019-2021 are as follows: 2019 $ 80,000 20% 2020 230,000 30 2021 90,000 30 Pretax accounting income for 2018...