Recording and Reporting Temporary and Permanent Differences The records of Lane Corporation show the following pretax GAAP income for the past 4 years. Year 1 Year 2 Year 3 Year 4 Pretax GAAP income $90,000 $92,000 $95,000 $98,000 The income tax rate is 25%. The company had the following differences between GAAP basis and tax basis income. For GAAP purposes, installment sales receivable is $30,000 on December 31 of Year 1. On the tax return, $10,000 will be recognized each year, Year 2 through Year 4, as cash is collected. •For GAAP purposes, warranty expenses of $4,000 are accrued in Year 1. On the tax return, $1,000 will be deducted each year, Year 1 through Year 4, as expenditures are made related to warranties. The company also recorded interest revenue of $1,250 each year on municipal bonds, which is not taxable. Required Schedules Journal Entries Financial Statement Presentation c. Prepare the journal entries to record income tax expense for Year 1, Year 2, Year 3, and Year 4. •Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero). Note: Round each amount to the nearest whole dollar. Date Account Name Dec. 31, Year 1 Income Tax Expense Date Deferred Tax Asset Deferred Tax Liability Income Tax Payable To record income tax expense Account Name Dec. 31, Year 2 Income Tax Expense Deferred Tax Asset Deferred Tax Liability くくくく >>>> Dr. 22.500 Cr. 0x 750 0 7,500 0 22,500 x Dr. Cr. 0 0x 500 0% 0 5.000 x D D
Recording and Reporting Temporary and Permanent Differences The records of Lane Corporation show the following pretax GAAP income for the past 4 years. Year 1 Year 2 Year 3 Year 4 Pretax GAAP income $90,000 $92,000 $95,000 $98,000 The income tax rate is 25%. The company had the following differences between GAAP basis and tax basis income. For GAAP purposes, installment sales receivable is $30,000 on December 31 of Year 1. On the tax return, $10,000 will be recognized each year, Year 2 through Year 4, as cash is collected. •For GAAP purposes, warranty expenses of $4,000 are accrued in Year 1. On the tax return, $1,000 will be deducted each year, Year 1 through Year 4, as expenditures are made related to warranties. The company also recorded interest revenue of $1,250 each year on municipal bonds, which is not taxable. Required Schedules Journal Entries Financial Statement Presentation c. Prepare the journal entries to record income tax expense for Year 1, Year 2, Year 3, and Year 4. •Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero). Note: Round each amount to the nearest whole dollar. Date Account Name Dec. 31, Year 1 Income Tax Expense Date Deferred Tax Asset Deferred Tax Liability Income Tax Payable To record income tax expense Account Name Dec. 31, Year 2 Income Tax Expense Deferred Tax Asset Deferred Tax Liability くくくく >>>> Dr. 22.500 Cr. 0x 750 0 7,500 0 22,500 x Dr. Cr. 0 0x 500 0% 0 5.000 x D D
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
Transcribed Image Text:Recording and Reporting Temporary and Permanent Differences
The records of Lane Corporation show the following pretax GAAP income for the past 4 years.
Year 1 Year 2 Year 3 Year 4
Pretax GAAP income $90,000 $92,000 $95,000 $98,000
The income tax rate is 25%. The company had the following differences between GAAP basis and tax basis income.
For GAAP purposes, installment sales receivable is $30,000 on December 31 of Year 1. On the tax return, $10,000 will be recognized each year, Year 2 through Year 4, as cash is collected.
•For GAAP purposes, warranty expenses of $4,000 are accrued in Year 1. On the tax return, $1,000 will be deducted each year, Year 1 through Year 4, as expenditures are made related to warranties.
The company also recorded interest revenue of $1,250 each year on municipal bonds, which is not taxable.
Required
Schedules
Journal Entries
Financial Statement Presentation
c. Prepare the journal entries to record income tax expense for Year 1, Year 2, Year 3, and Year 4.
•Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).
Note: Round each amount to the nearest whole dollar.
Date
Account Name
Dec. 31, Year 1
Income Tax Expense
Date
Deferred Tax Asset
Deferred Tax Liability
Income Tax Payable
To record income tax expense
Account Name
Dec. 31, Year 2 Income Tax Expense
Deferred Tax Asset
Deferred Tax Liability
くくくく
>>>>
Dr.
22.500
Cr.
0x
750
0
7,500
0
22,500 x
Dr.
Cr.
0
0x
500
0%
0
5.000 x
D
D
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