Question

Stellar 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.

Stellar’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).)

Stellar 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     Current    Deferred    Dividends    Expenses    Income before Income Taxes    Income Tax Expense    Net Income / (Loss)    Retained Earnings, January 1    Retained Earnings, December 31    Revenues    Total Expenses    Total Revenues	$enter a dollar amount
select an income statement item     Current    Deferred    Dividends    Expenses    Income before Income Taxes    Income Tax Expense    Net Income / (Loss)    Retained Earnings, January 1    Retained Earnings, December 31    Revenues    Total Expenses    Total 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

1)

Taxable income	$85,800
Income taxes payable	$25,740

Explanation:-

Pretax financial income for 2020	$66,100
Excess depreciation per tax return	($14,800)
Excess rent collected over rent earned	$23,900
Nondeductible fines	$10,600
Taxable income	$85,800
Taxable income	$85,800
Enacted tax rate	30%
Income tax payable	$25,740

2)

Account Titles and explanations	Debit	Credit
Income tax expense	$23,010 (Bal. Figure)
Deferred tax assets	$7,170 ($23,900 ×30%)
Income tax payable		$25,740
Deferred tax liability		$4,440 ($14,800 ×30%)
(Being income tax expense, deferred income taxes and income tax payable recorded)

3)

Stellar company
Income statement ( Partial)
Year ended December 31,2020
Income before income taxes		$66,100
Income tax expense:
Current	$25,740
Deferred ($7,170 - $4,440)	($2,730)
		$23,010
Net income/(loss)		$43,090

4)

Effective income tax rate

34.8%

Explanation:-

$23,010/$66,100 = 0.348 ; 0.348 ×100 = 34.8%