Question

In: Accounting

Problem 13-2 Calculating the amount of temporary and permanent differences and tax entry (LO 13-2, LO...

Problem 13-2 Calculating the amount of temporary and permanent differences and tax entry (LO 13-2, LO 13-4, LO 13-8)

The following information pertains to Ramesh Company for the current year:


Book income before income taxes	$	106,000
Income tax expense		45,500
Income taxes due for this year		28,000
Statutory income tax rate		35	%

The company has one permanent difference and one temporary difference between book and taxable income.

Required:

Calculate the amount of temporary difference for the year and indicate whether it causes book income to be more or less than taxable income.

Calculate the amount of permanent difference for the year and indicate whether it causes book income to be more or less than taxable income.

Provide the journal entry to record income tax expense for the year.

Compute the effective tax rate (that is, income tax expense divided by book income before taxes).

Requirement 1 & 2

1. Calculate the amount of temporary difference for the year and indicate whether it causes book income to be more or less than taxable income.

2. Calculate the amount of permanent difference for the year and indicate whether it causes book income to be more or less than taxable income.


1.	Temporary difference arising during the year
	Is book income more or less than taxable income as a result?
2.	Permanent difference arising during the year
	Is book income more or less than taxable income as a result?

Requirement 3

Prepare the entry to record income taxes for the year.

Requirement 4

Effective tax rate

%

Expert Solution

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.

Part -1

Income Tax Expense		$ 45,500
Less: Income Tax Dues		$ 28,000
Deferred Tax payable	a	$ 17,500
Tax Rate	b	0.35
Temporary Difference	a/b	$ 50,000
It is causing Book Income more than tax income since Income tax expense more than payable.


Part -2

Book Income before Income Tax		$ 106,000
Less: Temporary Difference		$ 50,000
Book Income after temporary diff	a	$ 56,000
Actual Taxable Income	b	$ 80,000
28000/0.35
Permanent Difference	b-a	$ 24,000

It is causing Book income to be lower from 80000 to 56000

Part -3
Income Tax Expense	$ 45,500
Deferred Tax Liability		$ 17,500
Income Tax Payable		$ 28,000

Part -4

Effective Tax Rate	28000/106000	26.42%

ekkarill92 answered 2 years ago

Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they...

Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they will create deferred tax assets or deferred tax liabilities. 5. Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes. 6. Interest is received on an investment in tax-exempt governmental obligations. 7. For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes, but the assets’ lives are...

Explain the difference between the statutory and effective tax rates. What are permanent and temporary differences?...

Explain the difference between the statutory and effective tax rates. What are permanent and temporary differences? What are the four primary TYPES of temporary differences identified by the text (explain each of the four briefly in your own words)?

In the income tax accounting, compare and contrast temporary and permanent differences. b) Give three examples...

In the income tax accounting, compare and contrast temporary and permanent differences. b) Give three examples of each difference

Describe a few common permanent and temporary book-tax differences. How does an unfavorable book-tax difference affect...

Describe a few common permanent and temporary book-tax differences. How does an unfavorable book-tax difference affect retained earnings and the corporation’s tax liability? Why do you think that a political contribution is an unfavorable permanent tax difference? Do you agree or disagree with the current tax treatment of political contributions?

Every adjustment entry affects: at least one permanent account and one temporary account. only a permanent...

Every adjustment entry affects: at least one permanent account and one temporary account. only a permanent account. only a temporary account. only a revenue account. 2 points QUESTION 2 The owner of a corporation is called a: partner. stockholder. director. manager. 2 points QUESTION 3 When a corporation is owned by a few persons or by a family, it is called a: closely held corporation. publicly held corporation. partnership. sole proprietorship. 2 points QUESTION 4 A distribution...

Explain the difference between temporary and permanent differences and provide an example of each.

what is the difference between a temporary and a permanent difference, with regards to income tax...

what is the difference between a temporary and a permanent difference, with regards to income tax reporting? Please provide an example of each of these in your response. Thank you

Write a one-page Summary to your co-workers explaining the differences between temporary differences and permanent differences...

Write a one-page Summary to your co-workers explaining the differences between temporary differences and permanent differences between net income (US GAAP) and taxable income (IRC). Illustrate your discussion with at least two examples of temporary and permanent differences.

Explain the differences between permanent and temporary accounts and identify which types of accounts must be...

Explain the differences between permanent and temporary accounts and identify which types of accounts must be closed at the end of a company’s fiscal year. Additionally, recall your Week 1 Discussion in which you brainstormed a business you would like to start. For your type of business, identify at least three permanent and at least three temporary accounts your business would have and explain why each account is classified as such. Once closing entries have been entered in the general...

At the end of the current year (year 4), DIG company’s only temporary differences are deductible temporary differences in the amount of $4,000.

At the end of the current year (year 4), DIG company’s only temporary differences are deductible temporary differences in the amount of $4,000. The company determines that it is more likely than not that future taxable income will not be sufficient to realize a tax benefit of $1,000 of the $4,000. Pre-tax financial income, taxable income, and taxes paid for each of the years 1-4 are all positive, but relatively negligible, amounts. The statutory tax rate is 30% for all...