Quiz_6_solutions_part_A

Quiz_6_solutions_part_A - 2,100 c Income Taxes Payable...

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Income Tax: (13 points) 1. Pretax financial income $66,000 Add: Excess of depreciation for financial reporting over depreciation for income taxes ($48,000 - $40,000)     8,000 Nondeductible officers’ life insurance premium expense not allowed for tax purposes   15,000 Excess of estimated warranty expense taken for financial reporting purposes over actual warranty costs taken for tax purposes ($27,000 - $20,000)     7,000 Less: Nontaxable interest on municipal bonds  (25,000) Percentage depletion in excess of cost depletion  (10,000) Gross profit recognized for financial reporting purposes in excess of gross profit recognized for tax purposes ($91,000 - $80,000)  (11,000 ) Taxable income $50,000 2. 2007 Dec. 31 Income Tax Expense  13,800 e Deferred Tax Liability (depreciation)    2,400 b Deferred Tax Asset (warranty)
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Unformatted text preview: 2,100 c Income Taxes Payable 15,000 a Deferred Tax Liability (install. sales) 3,300 d a $50,000 x 0.30 b ($33,800 x 0.30) - $12,540; decrease in deferred tax liability c ($56,500 x 0.30) - $14,850 d ($26,700 x 0.30) - $4,710 e $15,000 + $3,300 - $2,400 - $2,100 3. The permanent differences are the nondeductible officers’ life insurance premium expense, nontaxable interest on municipal bonds, and percentage depletion in excess of cost depletion. These differences are not accounted for in the journal entry in Requirement 2 as deferred tax items because they will never reverse (i.e., pretax financial income and taxable income will always be different for permanent differences)....
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Quiz_6_solutions_part_A - 2,100 c Income Taxes Payable...

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