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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
Jon invested cash in the new corporation.
Bought equipment for cash on January 1. (10-year life)
Bought office building for cash on January 1. (40-year life)
Billed customers for consulting services
Paid ultilities and other operating expenses
Recorded depreciation expense - Equipment
Recorded depreciation expense - Building
Recorded bad debts for the year
Wrote-off uncollectible accounts
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.
Allowance for Bad Debts
Accumulated Depreciation-Straight Line- 10 yrs
Accumulated Depreciation-Straight Line- 40 yrs
Income Tax Payable
Deferred Income Tax
Bad Debts Expense
Utilities and other operating expenses
Income Tax Expense
How much cash was invested by Jon to start the corporation?
What is net income before income taxes for the first year?
How much of the accounts receivable were written off In the first year?
How much cash was collected from customers in the year?
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?
What is balance in retained earnings on 12-31-2010, after income tax liability is recorded.
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?
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?