T12S-Chp-02-4-Prb-Fin-Stmts-and-Taxable-Income -...

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Page 1 of 5 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. 1 Cash $404,000 2 Accounts Receivable 178,000 3 Allowance for Bad Debts $4,000 4 Equipment 30,000 5 Accumulated Depreciation-Straight Line- 10 yrs 6 Building 200,000 7 Accumulated Depreciation-Straight Line- 40 yrs 5,000 8 Income Tax Payable 9 Deferred Income Tax 10 Common Stock 500,000 11 Retained Earnings 12 Revenue 400,000 13 Depreciation Expense 8,000 14 Bad Debts Expense 6,000 15 Utilities and other operating expenses 86,000 16 Income Tax Expense 17 Totals $912,000 $912,000 1 How much cash was invested by Jon to start the corporation? a. $200,000 b. $204,000 c. $500,000 $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 $100,000 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 None e. Other 4 How much cash was collected from customers in the year? a. $400,000 b. $222,000 c. $220,000 $178,000 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 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 $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 $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
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This note was uploaded on 03/09/2012 for the course ACCT 4220 taught by Professor Burton during the Spring '08 term at UNC Charlotte.

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T12S-Chp-02-4-Prb-Fin-Stmts-and-Taxable-Income -...

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