Example Problem On Taxes-Soln

# Example Problem On - Income before taxes \$200,000 Less income tax expense Current \$59,200 Deferred 12,000 71,200 Net income \$128,800 d Reconcile

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Example Problem On Taxes Solution Income before Tax is \$200,000. Tax rate is 40%. Financial Report Tax To Shareholders Return Depreciation \$20,000 \$35,000 Warranty expense 5,000 4,000 Installment sales revenue 30,000 8,000 Prepaid rental revenue 11,000 17,000 State and municipal bond revenue 24,000 -- Life insurance premiums 9,000 -- Dividend revenue from other US corporations 10,000 3,000 a. What is taxable income? \$148,000 \$200,000 is bottom of FRS column. Work up to get \$159,000 then work down the TR column to get \$148,000. b. What is the journal entry to record tax due for the year, tax expense and additions to deferred tax accounts? Income tax expense 71,200 Deferred tax assets 2,800 Deferred tax liabilities 14,800 Tax due for the year 59,200 c. Write the amounts that will appear at the bottom of the income statement starting with Income Before Tax

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Unformatted text preview: Income before taxes \$200,000 Less: income tax expense Current \$59,200 Deferred 12,000 71,200 Net income \$128,800 d. Reconcile the effective tax rate with the statutory rate of 40% US Federal Statutory Rate 40.00% Municipal bond interest revenue (-24,000/200,000)(.40) (4.80) Life insurance premiums (+9,000/200,000)(.40) 1.80 Dividend revenue exclusion (-7,000/200,000)(.40) (1.40) Effective tax rate 35.60% Calculation of Taxable Income from data and Income Before Tax amount of \$200,000. Item Difference Depreciation-15,000 Warranty Expense +1,000 Installment Sales Revenue-22,000 Prepaid Rental Revenue +6,000 Municipal Bond Revenue-24,000 Life insurance Premiums +9,000 Dividend Revenue-7,000 Cumulative Difference-52,000 Income Before Tax \$200,000 Taxable Income \$148,000...
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## This note was uploaded on 03/03/2012 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University-West Lafayette.

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Example Problem On - Income before taxes \$200,000 Less income tax expense Current \$59,200 Deferred 12,000 71,200 Net income \$128,800 d Reconcile

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