Question

The following facts relate to Sunland Corporation. 1. Deferred tax liability, January 1, 2020, $33,900. 2. Deferred tax asset, January 1, 2020, $11,300. 3. Taxable income for 2020, $118,650. 4. Cumulative temporary difference at December 31, 2020, giving rise to future taxable amounts, $259,900. 5. Cumulative temporary difference at December 31, 2020, giving rise to future deductible amounts, $107,350. 6. Tax rate for all years, 20%. No permanent differences exist. 7. The company is expected to operate profitably in the future.

Compute the amount of pretax financial income for 2020. Pretax financial income $

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

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).) Sunland Corporation Income Statement (Partial) December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020 CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues $ CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues     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     $     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     CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues $

Compute the effective tax rate for 2020. (Round answer to 0 decimal places, e.g. 25%) Effective tax rate % Click if you would like to Show Work for this question: Open Show Work

Answer 1

a)

Particulars	Amount
Cumulative temporary differences giving rise to future taxable amount	$259,900
Required ending balance in deferred tax liability ($259,900*20%)	$51,980
Existing balance of deferred tax liability	$33,900
Deferred tax liability to be recorded for current year(51,980 – 33,900)	$18,080
Temporary differences for current year giving rise to future taxable amount ($18,080/20%)	$90,400
Cumulative temporary differences giving rise to future deductible amount	$107,350
Required ending balance in deferred tax Assets (107,350*20%)	$21,470
Existing balance of deferred tax Assets	$11,300
Deferred tax assets to be recorded for current year(21,470 – 11,300)	$10,170
Temporary differences for current year giving rise to future deductible amount ($10,170/20%)	$50,850

Computation of pre-tax financial income
Particulars	Amount
Taxable income	$118,650
Add: Temporary differences for current year giving rise to future taxable amount	$90,400
Less: Temporary differences for current year giving rise to future deductible amount	$50,850
Pre tax financial income	$158,200

b)

Journal Entries - Sunland Corporation
Date	Particulars	Debit	Credit
31-Dec-20	Income tax expense Dr	$31,640
	Deferred tax assets Dr	$10,170
	To Income tax Payable ($118,650*20%)		$23,730
	To Deferred tax liability		$18,080
	(Being to record income tax and deferred tax for 2020)

c)

Sunland Corporation
Income Statement (Partial)
For year ended December 31, 2020
Particulars		Amount
Income before taxes		$158,200
Less: Income tax expense:
Current Tax	$23,730
Deferred tax ($18,080 - $10,170)	$7,910
		$31,640
Net Income		$126,560

d)

Effective tax rate for 2020 = Income tax expense / Pre-tax financial income

= $31,640 / $158,200 = 20%

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