Redlands Inc. reported the following generally accepted accounting principles (GAAP) income statement through pretax income: Sales revenues $100 Operating expenses 85 Operating income 15 Bond revenue 10 Pretax income $25 The $10 bond revenue reported was from interest earned on a municipal bond investment. GAAP requires firms to report municipal bond revenue on their income statements, but municipal bond revenue is not subject to taxation under income tax laws. Redlands collected $95 cash from sales revenues. It recorded an account receivable asset on its balance sheet for the $5 uncollected portion. Income tax law only requires a firm to declare revenue from sales collected in cash on its current income tax return. The statutory (legal) income tax rate was 20%. Using the information above, complete the following income tax return. Complete Redlands’ income tax return. Report Redlands’ deferred income tax payable amount for its temporary income tax difference in the balance sheet cell provided. Do not include the dollar sign in your answer. Assets: Liabilities: Accounts receivable $5 Deferred income tax payable $___ Complete Redlands’ GAAP income statement. Sales revenues $100 Operating expenses 85 Operating income $15 Bond revenue 10 Pretax income $25 Current income tax expense payable Deferred income tax expense Net income* Compute Redlands’ effective income tax expense. Do not include the dollar or percentage signs in your answer. __% Answer:
Redlands Inc. reported the following generally accepted accounting principles (GAAP) income statement through pretax income:
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Sales revenues |
$100 |
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Operating expenses |
85 |
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Operating income |
15 |
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Bond revenue |
10 |
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Pretax income |
$25 |
The $10 bond revenue reported was from interest earned on a municipal bond investment. GAAP requires firms to report municipal bond revenue on their income statements, but municipal bond revenue is not subject to
Redlands collected $95 cash from sales revenues. It recorded an account receivable asset on its balance sheet for the $5 uncollected portion. Income tax law only requires a firm to declare revenue from sales collected in cash on its current income tax return.
The statutory (legal) income tax rate was 20%.
Using the information above, complete the following income tax return.
Complete Redlands’ income tax return.
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Report Redlands’
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Assets: |
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Liabilities: |
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Accounts receivable |
$5 |
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Deferred income tax payable |
$___ |
Complete Redlands’ GAAP income statement.
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Sales revenues |
$100 |
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Operating expenses |
85 |
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Operating income |
$15 |
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Bond revenue |
10 |
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Pretax income |
$25 |
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Current income tax expense payable |
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Deferred income tax expense |
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Net income* |
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Compute Redlands’ effective income tax expense. Do not include the dollar or percentage signs in your answer.
__%
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