Cleveland Enterprises, Inc. began business on January 1, 2019. The company purchased $150,000 worth of 5-year...

Cleveland Enterprises, Inc. began business on January 1, 2019. The company purchased $150,000 worth of 5-year equipment on March 1. The company uses MACRS depreciation for tax purposes and straight line depreciation for financial statement purposes. The company’s net income for financial statement purposes is $300,000. Tax depreciation on the equipment is $30,000 and book depreciation is $25,000. The company earned $2,000 in interest from a tax free municipal bond. Prepare the journal entry for financial statement purposes for the company’s tax expense at 12/31/19. Assume a tax rate of 21%.

Expert Solution

	Amount $
Net income for financial statement purposes	300,000
Add: Book Depreciation	25,000
Less: Tax Depreciation	-30,000
Less: Interest from tax free municipal bond	-2,000
Taxable Income	293,000

Current Tax expense	$ 61,530	=293000*21%
Deferred Tax Expense	$ 1,050	=(30000-25000)*21%

Account Titles	Debit $	Credit $
Current Tax expense	61,530
Deferred Tax Expense	1,050
Deferred Tax Liability		1,050
Income Tax Payable		61,530

ekkarill92 answered 2 years ago

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