1 b6c0b73a692b4311b476b5c5d1f22f6ebc203957.xls
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Jon started a consulting company on January 1, 2010.
All consulting services are provided on credit. All operating expenses are paid when incurred. All transactions for organization and operation in 2010 are presented below.
Summary of transactions - enter total for each transaction in shaded area
Amount
A Jon invested cash in the new corporation. B Bought equipment for cash on January 1. (10-year life) C Bought office building for cash on January 1. (40-year life) D Billed customers for consulting services E Paid ultilities and other operating expenses F Recorded depreciation expense - Equipment G Recorded depreciation expense - Building H Recorded bad debts for the year I Wrote-off uncollectible accounts J Recorded collections of receivables from customers Enter the amount for each transaction above. Assume federal income tax rate is 40%. No payment was made during 2010 for federal corporate income taxes. Entry to record income taxes payable has not been made. There is no state income tax. $404,000 1 Cash 178,000 2 Accounts Receivable $4,000 3 Allowance for Bad Debts 30,000 4 Equipment 5 Accumulated Depreciation-Straight Line- 10 yrs 200,000 6 Building 5,000 7 Accumulated Depreciation-Straight Line- 40 yrs 8 Income Tax Payable 9 Deferred Income Tax 500,000 10 Common Stock 11 Retained Earnings 400,000 12 Revenue 8,000 13 Depreciation Expense 6,000 14 Bad Debts Expense 86,000 15 Utilities and other operating expenses 16 Income Tax Expense $912,000 $912,000 17 Totals 1 How much cash was invested by Jon to start the corporation? a. $200,000 b. $204,000 c. $500,000 d. $912,000 e. Other 2 What is net income before income taxes for the first year? a. $400,000 b. $300,000 c. $314,000 d. $100,000 3 How much of the accounts receivable were written off In the first year? a. $2,000 b. $4,000 c. $6,000 d. None 4 How much cash was collected from customers in the year? a. $400,000 b. $222,000 c. $220,000 d. $178,000 e. Other e. Other e. Other
5 Assume there is no difference between GAAP net income before taxes and taxable income. There is no state income tax. How much federal income tax is owed? a. $120,000 b. $160,000 c. $40,000 d. None e. Other 6 What is balance in retained earnings on 12-31-2010, after income tax liability is recorded. a. $100,000 b. $300,000 c. $120,000 d. $180,000 e. Other 7 Now assume the income tax law requires the direct charge off method for bad debts expense. Otherwise GAAP income and taxable income are computed in the same manner. What is balance in the deferred income tax account at the end of the year? a. Zero b. $2,400 c. $800 d. $1,600 e. Other 8 Now assume that the full cost of the equipment ($30,000) is written off, in accordance with tax law. What is balance in the deferred tax account related to depreciation on 12-31-2010? a. $10,800 b. $27,000 c. $2,700 d. $12,000 e. Other
b6c0b73a692b4311b476b5c5d1f22f6ebc203957.xls
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Jon started a consulting company on January 1, 2010.
All consulting services are provided on credit. All operating expenses are paid when incurred. All transactions for organization and operation in 2010 are presented below.
Summary of transactions - enter total for each transaction in shaded area
Amount
A Jon invested cash in the new corporation. B Bought equipment for cash on January 1. (10-year life) C Bought office building for cash on January 1. (40-year life) D Billed customers for consulting services E Paid ultilities and other operating expenses F Recorded depreciation expense - Equipment G Recorded depreciation expense - Building H Recorded bad debts for the year I Wrote-off uncollectible accounts J Recorded collections of receivables from customers Enter the amount for each transaction above. Assume federal income tax rate is 40%. No payment was made during 2010 for federal corporate income taxes. Entry to record income taxes payable has not been made. No state income tax. $404,000 1 Cash 178,000 2 Accounts Receivable $4,000 3 Allowance for Bad Debts 30,000 4 Equipment 5 Accumulated Depreciation-Straight Line- 10 yrs 200,000 6 Building 5,000 7 Accumulated Depreciation-Straight Line- 40 yrs 8 Income Tax Payable 9 Deferred Income Tax 500,000 10 Common Stock 11 Retained Earnings 400,000 12 Revenue 8,000 13 Depreciation Expense 6,000 14 Bad Debts Expense 86,000 15 Utilities and other operating expenses 16 Income Tax Expense $912,000 $912,000 17 Totals 1 How much cash was invested by Jon to start the corporation? a. $200,000 b. $204,000 c. $500,000 d. $912,000 e. Other 2 What is net income before income taxes for the first year? a. $400,000 b. $300,000 c. $314,000 d. $100,000 3 How much of the accounts receivable were written off In the first year? a. $2,000 b. $4,000 c. $6,000 d. None 4 How much cash was collected from customers in the year? a. $400,000 b. $222,000 c. $220,000 d. $178,000 e. Other e. Other e. Other
5 Assume there is no difference between GAAP net income before taxes and taxable income. There is no state income tax. How much federal income tax is owed? a. $120,000 b. $160,000 c. $40,000 d. None e. Other 6 What is balance in retained earnings on 12-31-2010, after income tax liability is recorded. a. $100,000 b. $300,000 c. $120,000 d. $180,000 e. Other 7 Now assume the income tax law requires the direct charge off method for bad debts expense. Otherwise GAAP income and taxable income are computed in the same manner. What is balance in the deferred income tax account at the end of the year? a. Zero b. $2,400 c. $800 d. $1,600 e. Other 8 Now assume that the full cost of the equipment ($30,000) is written off, in accordance with tax law. What is balance in the deferred tax account related to depreciation on 12-31-2010? a. $10,800 b. $27,000 c. $2,700 d. $12,000 e. Other
b6c0b73a692b4311b476b5c5d1f22f6ebc203957.xls
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Jon started a consulting company on January 1, 2010.
1 How much cash was invested by Jon to start the corporation? $200,000 a. b. $204,000 d. $912,000 c. $500,000 See credit to common stock e. Other
2 What is net income before income taxes for the first year? a. $400,000 c. $314,000 d. $100,000 b. $300,000 400,000 Revenue 8,000 Depreciation Expense 6,000 Bad Debts Expense 86,000 100,000 Utilities and other expenses $300,000 Net income
e. Other
3 How much of the accounts receivable were written off in the first year? a. $2,000 b. $4,000 c. $6,000 d. None e. Other Provision for bad debts (credit to allowance) $6,000 Ending balance in allowance account ($4,000) Remainder - written off $2,000 4 How much cash was collected from customers in the year? a. $400,000 b. $222,000 c. $220,000 d. $178,000 Consulting services provided on credit $400,000 Accounts written off ($2,000) Remainder $398,000 Ending Receivables ($178,000) Collections $220,000 e. Other
5 Assume federal income tax rate is 40%. Assume for this question only that there is no differencebetween GAAP net income before taxes and taxable income. How much federal income tax is owed? a. $120,000 b. $160,000 c. $40,000 d. None e. Other Net income from above $300,000 Tax Rate 40% Income Tax Owed $120,000 6 Assume the income tax liability (computed above) is recorded. What is the balance in retained earnings at the end of the first year? a. $100,000 b. $300,000 c. $120,000 d. $180,000 e. Other 7 Now assume the income tax law requires the direct charge-off method for bad debts expense. Otherwise GAAP income and taxable income are computed in the same manner. What is balance in the deferred income tax account on 12-31-2010? a. Zero b. $2,400 c. $800 d. $1,600 e. Other Net income from above $300,000 Add provision for bad debts $6,000 Deduct write-off ($2,000) Taxable Income $304,000 40% Income tax owed $121,600 Income tax expense $120,000 Difference $1,600 8 Now consider that the tax law will allow full write-off of the equipment. Assuming it is expensed, how does that affect the deferred tax account?
Book Depreciation -Machine Tax Depreciation-Machine Difference Tax Rate Deferred tax liability $3,000 $30,000 ($27,000) 40% ($10,800)
Transactions
b6c0b73a692b4311b476b5c5d1f22f6ebc203957.xls
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Credits are (xx)
A B C D E F G H I J Jon invested cash Bought equipment Bought building Billed customers Paid expenses Depreciation expense Depreciation expense Provision - Bad Debt Write-off Collections
Cash $500,000 ($30,000) ($200,000)
Acct Rec
Allow
Equip
Bldg
Acc Dep
Liab.
C. Stock ($500,000)
Ret. Earn
Revenue
B.Debts
Other Exp
Balance
$30,000 $200,000 $400,000 ($400,000) $86,000 ($5,000) ($3,000) ($6,000) ($2,000) $2,000 $6,000 $5,000 $3,000
($86,000)
$220,000
($220,000)
$404,000 Net Income before tax Income Tax Balance of Retained Earnings
$178,000
($4,000)
$30,000
$200,000
($8,000)
($500,000)
$0 ($300,000)
($400,000)
$6,000
$94,000
$0 $300,000 $120,000
($120,000)
$120,000 ($180,000)
Entries above based on assumption that there is no difference between book and taxable income. Note that bad debts write-off for tax purposes is $2,000, the amount that became uncollectible.
Tab: Accounts
File: b6c0b73a692b4311b476b5c5d1f22f6ebc203957.xls
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Jon started a consulting company on January 1, 2010.
Jon started a company on January 1, 2010, became the 100% owner of the business.. All consulting services are provided on credit. All operating expenses are paid when incurred. All transactions for organization and operation in 2010 are presented below. A Jan. 1, 2010 Jon invested cash in the new corporation. $500,000 B C D E F G H I
Jan. 1, 2010 Jan. 1, 2010 In 2010 In 2010 In 2010 Dec. 31, 2010 Dec. 31, 2010 Dec. 31, 2010
Bought equipment for cash (10-year life) Bought office building for cash (40-year life) Billed customers for consulting services Paid ultilities and other operating expenses Recorded collections of receivables from customers Recorded depreciation expense Recorded bad debts for the year Wrote-off uncollectible accounts
$30,000 $200,000 $400,000 $86,000 $220,000 $8,000 $6,000 $2,000
No entry or payment was made in 2010 for federal income taxes. Closing entries have not been made. Ignore the fact that part of the cost of $200,000 shown for the building is for land that is not depreciable. Assume that book and tax depreciation are the same. Ignore question no. 8 on first tab. Revenue and Expense GAAP Bad Debts Sales $400,000 Bad Debts Expenses (6,000) $4,000 Other Expenses (other than fed. income taxes) (94,000) Net income before federal income taxes/taxable income $300,000 Allowance for Bad Debts balance Allowance for Bad Debts balance What is taxable income for 2010?
No Bal
Tax Return
$400,000 ($2,000) ($94,000) $304,000
Beginning Ending
$0 $4,000
Cash
?
No Bal
Accounts Rec.
?
No Bal
Allow - Bad Debt 0
Provision
No Bal
?
A B C E F
Totals
500,000 30,000 200,000 86,000 220,000 720,000 404,000 316,000
D F
400,000 220,000 H
Write-off Write-off
6,000 2,000 2,000 6,000 4,000
Totals
I
Totals
2,000 400,000 178,000 222,000
I
Totals
Bal
Bal
Bal
Bal
No Bal
Equipment
?
No Bal
Building
?
No Bal
Accum. Deprec.
?
No Bal
Income tax payable
B
Totals
30,000
C
Totals
200,000
G
Totals
8,000
Totals
Bal
30,000
Bal
200,000
Bal
8,000
Bal
No Bal
Common Stock
500,000
No Bal
Retained Earn.
No Bal
Revenue
0
No Bal
0
A
Totals
D
Totals Totals
400,000 400,000
Totals
Bal
No Bal
500,000
Bal
No
Bal
Bal
Bad Debt Expense
0 Provision
No Bal
0
Bal
G
Totals
Depreciation Exp 0 8,000 8,000
No Bal
Other Expense
0
E
Totals
86,000 86,000
H
Totals Totals
6,000 6,000
Bal
Bal
Bal
Bal
Key transactions for analysis of Receivable, Collections, etc. Bal Beginning Balances, or Ending Balances 1 Sales 2 Bad Debt Expense 3 Write-off of Bad Debts 4 Collection
Reconciliation of Book Income to Taxable Income Net income per books $300,000 Increase in Allowance for Bad Debts $4,000 Decrease in Allowance for Bad Debts Taxable Income $304,000