In: Accounting
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Compute taxable income and income taxes payable for
2021.
Prepare the journal entry to record 2021 income tax expense, income
taxes payable, and deferred taxes. (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.)
Prepare the bottom portion of Concord’s 2021 income
statement, beginning with “Income from continuing operations before
income taxes.” (Enter negative amounts using either a negative
sign preceding the number e.g. -45 or parentheses e.g.
(45).)
Indicate how deferred income taxes should be presented on the
December 31, 2021, balance sheet.
A. Computation of Taxable Income and Income Tax Payable for 2021
Particulars | Amount | |
Pre-tax financial income | 1,496,000 | |
Add | Dep as per Books (1,256,000 / 8 years) | 157,000 |
Less | Dep as per IT (1,256,000 / 5 years) | -251,200 |
Less | Exempt Interest Income municipal obligations | -55,000 |
Taxable Income | 1,346,800 | |
Income Tax Payable @ 20% | 269,360 |
B. Journal Entry to record 2021 income tax expense, income tax payable and deferred taxes
Income Tax as per Pre-tax financial Income (1,496,000*20%) | 299,200 |
Income Tax as per Taxable Income (1,346,800*20%) | 269,360 |
Here, Pre-tax financial income is higher than Taxable income. So, it will create deferred tax liability.
Because in accounts, we have to book Income tax as per Pre-tax financial income and we pay Income tax as per Taxable Income. So balance is deferred tax liability, which we need to pay in future.
Account Titles & Explanation | Debit | Credit |
Income Tax Expense | 299,200 | |
Income Tax Payable | 269,360 | |
Deferred Tax Liability | 29,840 |
C. Income Statement
Martinex Corporation | |
Income Statement (Partial) | |
For the Year December 31, 2021 | |
Income from Continuing operations before income taxes | 1,496,000 |
Income Tax | -299,200 |
Income from continuing Operations (I) | 1,196,800 |
Discontinued Operations (II) | |
Gain on discontinued Operations | 183,000 |
Net Income ( III = I + II ) | 1,379,800 |
D. Balance Sheet
Martinex Corporation | |
Balance Sheet (Partial) | |
December 31,2021 | |
Non-current Liabilities | |
Deferred Tax Liability | 29,840 |
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