Question

CALCULATOR MESSAGE MY INSTRUCT Crane Company reports pretax financial income of $64,000 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 $22,100. 3. Fines for pollution appear as an expense of $10,000 on the income statement. Crane'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

Answer 1

1 Compute Taxable Income and Income taxes payable for 2017 Answer $81,400 Taxable Income $32,560 Income Taxes Payable Calculation of Taxable Income Explanations $64,000 ($14,700) $22,100 Pretax financial income for 2017 Excess depreciation per tax return Excess rent collected over rent earned $10,000 $81,400 Nondeductible fines Taxable income Calculation of Income Taxable Payable $81,400 Taxable income Enacted Tax Rate 40% Income Tax Payable ($81,400 x 40%) $32,560 2 Journal Entry Particulars Debit Credit Income Tax Expense $29,600 Deferred Tax Assets ($22,100 x 40%) $8,840 Income Tax Payable $32,560 Deferred Tax Liability ($14,700 x 40%) $5,880 (To record the Income Tax Expense)

Crane Company 3 Income Statement (Partial) Year Ended December 31, 2017 Income Before Income Taxes $64,000 Income Tax Expense -Current Income Tax Expense - Deferred ($5,880- $8,840) $32,560 ($2,960) $29,600 Net Income /(Loss) $34,400 4 Calculation of Effective Income Tax Rate for 2017 Effective Income Tax Rate $29,600 $64,000 46.3%