Computing and recording a corporation’s income tax [15-20 min]
The accounting records of Rhyme Redwood Corporation provide income statement data for 2012.
Total revenue | $ 940,000 |
Total expenses | 750,000 |
Income before tax | $ 190,000 |
Total expenses include depreciation of $50,000 computed on the straight-line method. In calculating taxable income on the tax return, Rhyme Redwood uses the modified accelerated cost recovery system (MACRS). MACRS depreciation was $80,000 for 2012. The corporate income tax rate is 34%.
Requirements
1. Compute taxable income for the year. For this computation, substitute MACRS depreciation in place of straight-line depreciation.
2. Journalize the corporation’s income tax for 2012.
3. Show how to report the two income tax liabilities on Rhyme’s classified balance sheet.
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