Question

Whispering Company reports pretax financial income of $66,100 for 2020. The following items cause taxable income to be different than pretax financial income.

1.		Depreciation on the tax return is greater than depreciation on the income statement by $14,800.
2.		Rent collected on the tax return is greater than rent recognized on the income statement by $23,900.
3.		Fines for pollution appear as an expense of $10,600 on the income statement.

Whispering’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2020.Compute taxable income and income taxes payable for 2020.

Taxable income		$enter a dollar amount
Income taxes payable		$enter a dollar amount

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Prepare the income tax expense section of the income statement for 2020, beginning with the line “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Whispering Company Income Statement (Partial) choose the accounting period                                                                      December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020
select an income statement item                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$enter a dollar amount
select an opening section name                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
select an income statement item                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues	$enter a dollar amount
select an income statement item                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues	enter a dollar amount
		enter a subtotal of the two previous amounts
select a closing name for this statement                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$enter a total net income or loss amount

Compute the effective income tax rate for 2020. (Round answer to 1 decimal places, e.g. 25.5%.)

Effective income tax rate

enter the Effective income tax rate in percentages rounded to 1 decimal place

%

Answer 1

Working Note

Computation of Taxable income & Tax Payable
pretax Financal income	$66,100.00
Less: Excess Depreciation as per Tax Return	-$14,800.00
Add: Rent Excess Consdered fpr Tax Return	$3,900.00
Add: Penalty Disllowed	$10,600.00
Taxable income	$65,800.00
Tax@ 30%	$19,740.00

Computation of DTA / DTL
Differences	Amount	Tax @30%	DTL	DTA
Depreciation	$14,800.00	$4,440.00	$4,440.00	$0.00
Rent Collected	$23,900.00	$7,170.00	$0.00	$7,170.00
Fines	$10,600.00	$3,180.00	$0.00	$0.00
Total			$4,440.00	$7,170.00

Journal Entries
Date	General Journal	Debit	Credit
Dec-31	Income tax Expense	$26,010.00
	Income tax payable		$25,680.00
Dec-31	Deferred Tax Assets	$7,170.00
	Deferred Tax		$7,170.00
Dec-31	Deferred Tax	$4,440.00
	Deferred Tax Liability		$4,440.00
Dec-31	Deferred Tax (7170-4440)	$2,730.00
	Income Tax Expense		$2,730.00

Income Tax Expense Section
Income before Income tax		$66,100.00
Less: Income Tax Expense
Current Tax	$19,740.00
Deferred Tax expense	-$2,730.00	$17,010.00
Income after income tax		$49,090.00

Computation of Effective Income Tax Rate
Income Tax Expense (A)	17010
Income Before Tax (B)	66100
Effective Tax Rate (A/B)	25.73%