Question

The following information has been obtained for Culver Corporation. 1. Prior to 2017, taxable income and pretax financial income were identical. 2. Pretax financial income is $1,649,000 in 2017 and $1,476,000 in 2018. 3. On January 1, 2017, equipment costing $1,140,000 is purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Hint: Use the half-year convention for tax purposes, as discussed in Appendix 11A.) 4. Interest of $55,000 was earned on tax-exempt municipal obligations in 2018. 5. Included in 2018 pretax financial income is a gain on discontinued operations of $183,000, which is fully taxable. 6. The tax rate is 35% for all periods. 7. Taxable income is expected in all future years. Compute taxable income and income taxes payable for 2018. Taxable income $ Income taxes payable $ Prepare the journal entry to record 2018 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.) Account Titles and Explanation Debit Credit Prepare the bottom portion of Culver’s 2018 income statement, beginning with “Income from continuing operations before income taxes.” (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Culver Corporation Income Statement (Partial) $ $ : $ Indicate how deferred income taxes should be presented on the December 31, 2018, balance sheet. Culver Corporation Balance Sheet $

Answer 1

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1. taxable income and income taxes payable for 2018
	Pretax Financial Income 2018		1476000
	Less Non Taxable Interest		-55000
	Less Depreciation Diff		-85500
	Taxable Income		1335500
	Income Tax Payable 2018	35%	467425
		Book Dep	Tax Dep	Diff	Cumm Diff	35%
	2017	142500	114000	28500	28500	9975	Deferred Tax Assets
	2018	142500	228000	-85500	-57000	-19950	Deferred Tax Liabilities
2. Journal Entries
2018		Debit	Credit
	Tax Expense	497350
	Deferred Tax Assets		9975	Reversal of DTA
	Deferred Tax Liabilities		19950
	Tax Payable		467425
3. Income Statement
	Income from Continuing Operating before income taxes		1293000
	(1476000-183000)
	Less:Income Tax Expense		433300	497350-(183000*35%)
	Income from Continuing Operations		859700
	Add: Income from Discont Operations	183000
	Less: Tax 35%	64050	118950
	Net Income		978650