A compute taxable income and income taxes payable for

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a. Compute taxable income and income taxes payable for 2010. b. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2010. c. Prepare the income tax expense section of the income statement for 2010, beginning with the line “Income before income taxes” d. Compute the effective income tax rate for 2010. (a) Pretax financial income for 2010 ............................................ $ 80,000 Excess depreciation per tax return ........................................ (16,000) Excess rent collected over rent earned ................................. 27,000 Nondeductible fines ................................................................. 11,000 Taxable income ........................................................................ $102,000 Taxable income ........................................................................ $102,000 Enacted tax rate ....................................................................... 30% Income tax payable .................................................................. $ 30,600 (b) Income Tax Expense ................................................. 27,300 Deferred Tax Asset .................................................... 8,100 Income Tax Payable ........................................... 30,600 Deferred Tax Liability ........................................ 4,800 Temporary Difference Future Taxable (Deductible) Amounts Tax Rate Deferred Tax (Asset) Liability Depreciation ( $ 16,000 30% $4,800 Unearned rent ( (27,000 ) 30% $(8,100 ) Totals $(11,000 ) $(8,100 ) $4,800 * *Because of a flat tax rate, these totals can be reconciled: $(11,000) X 30% = $(8,100) + $4,800. Deferred tax liability at the end of 2010 ................................. $ 4,800 Deferred tax liability at the beginning of 2010 ...................... 0
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Deferred tax expense for 2010 (increase required in deferred tax liability) ........................................ $ 4,800 Deferred tax asset at the end of 2010 .................................... $ ( 8,100 Deferred tax asset at the beginning of 2010 ......................... 0 Deferred tax benefit for 2010 (increase required in deferred tax asset) ........................................... $ (8,100 ) Deferred tax expense for 2010 ................................................ $ 4,800 Deferred tax benefit for 2010 .................................................. (8,100 ) Net deferred tax benefit for 2010 ............................................ (3,300) Current tax expense for 2010 (Income tax payable) ............ 30,600 Income tax expense for 2010 .................................................. $27,300 (c) Income before income taxes ................................. $80,000 Income tax expense Current ............................................................. $30,600 Deferred ........................................................... (3,300 ) 27,300 Net income ............................................................... $52,700 Note : The details on the current/deferred tax expense may be presented in a note to the financial statements. (d) $27,300 = 34.1% effective tax rate for 2010. $80,000
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