Answered: Prepare Wilcox’s income tax journal…

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter3: Taxes On The Financial Statements

Section: Chapter Questions

Problem 4BCRQ

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Question

Wilcox Company has prepared the following reconciliation of its pretax financial income with its taxable income for 2019:


Pretax financial income	$3,000
Add: Estimated expense on 1-year warranties recognized for financial reporting in excess of actual warranty costs deducted for income taxes	100
Less: MACRS depreciation deducted for income taxes in excess of depreciation recognized for financial reporting	(150)
Taxable income	$2,950

At the beginning of 2019, Wilcox had a deferred tax liability of $495. The current tax rate is 30%, and no change in the tax rate has been enacted for future years. At the end of 2019, Wilcox anticipates that actual warranty costs will exceed estimated warranty expense by $100 next year and that financial depreciation will exceed tax depreciation by $1,800 in future years. Wilcox has earned income in all past years and expects to earn income in the future.

Required:

1.	Prepare Wilcox’s income tax journal entry at the end of 2019.
2.	Prepare the lower portion of Wilcox’s 2019 income statement.
3.	Show how the income tax items are reported on Wilcox’s December 31, 2019, balance sheet.