Jenny Corporation recorded warranty accruals as at December 31, 2011, in the amount of $150,000. This reversing difference will cause deductible amounts of $50,000 in 2012, $35,000 in 2013, and $65,000 in 2014. Jenny’s accounting income for 2011 is $135,000 and the tax rate is 25% for all years. There are no future tax accounts at the beginning of 2011.
Instructions
(a) Calculate the future
income tax balance at December 31, 2011.
(b) Calculate taxable income
and current income taxes payable for 2011.
(c) Prepare the journal
entries to record income taxes for 2011.
(d) Prepare the income tax
expense section of the income statement for 2011, beginning with the line
“Income before income taxes.”
(a)
Balance |
|
|
Deductible |
|
|
Sheet |
|
|
(Taxable) |
|
Future
Tax |
Account |
Carrying |
Tax |
Temporary |
Tax |
Asset |
Dec.
31, 2011 |
Amount |
Basis |
Differences |
Rate |
(Liability) |
Warranty liability |
($150,000) |
$0 |
$150,000 |
25% |
$37,500 |
Future
income tax asset, December 31, 2011 |
37,500 | ||||
Future
income tax asset before adjustment |
0 | ||||
Increase in future income tax asset and
future income tax benefit for 2011 |
$37,500 |
|
|
Future years | ||||||
|
|
Total |
|
2012 |
|
2013 |
|
2014 |
Deductible temporary difference |
|
|
|
|
|
|
|
|
Warranty liability |
|
$150,000 |
|
$50,000 |
|
$35,000 |
|
$65,000 |
Tax
rate enacted for the year |
|
|
|
25% |
|
25% |
|
25% |
Future
tax asset |
|
$37,500 |
|
$12,500 |
|
$8,750 |
|
$16,250 |
(b) |
2013 |
Accounting income |
$135,000 |
Permanent differences: |
-0- |
Reversing difference: |
|
Warranty expense > warranty
costs
incurred |
150,000 |
Taxable income |
285,000 |
Current income taxes –
25% |
$71,250 |
(c)
Current Income Tax
Expense................ 71,250
Income Tax Payable
................... 71,250
Future Income Tax
Asset................... 37,500
Future Income Tax
Benefit............. 37,500
(d) Income before income
taxes $135,000
Income tax
expense
Current $71,250
Future
benefit (37,500) 33,750
Net
income $101,250
No comments:
Post a Comment