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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Interperiod Tax Allocation Quick Company reports the following revenues and expenses in its pretax financial income for the year ended December 31, 2019:

Chapter 18, Problem 6P, Interperiod Tax Allocation Quick Company reports the following revenues and expenses in its pretax , example  1

The revenues included in pretax financial income are the same amount as the revenues included in the company’s taxable income. A reconciliation of the expenses reported for pretax financial income to the expenses reported for taxable income, however, reveals four differences:

  1. 1. Depreciation deducted for financial reporting exceeded depreciation deducted for income taxes by $11,000.
  2. 2. Percentage depletion deducted for income taxes exceeded cost depletion deducted for financial reporting by $15,600.
  3. 3. Warranty costs deducted for income taxes exceeded warranty expenses deducted for financial reporting by $8,900.
  4. 4. Legal expense of $9,800 was deducted for financial reporting; it will be deducted for income taxes when paid in a future year.

Quick expects its percentage depletion to exceed its cost depletion in each of the next 5 years by the same amount as in 2019. At the end of 2019, the other three expenses are expected to result in total future taxable or deductible amounts as follows:

Chapter 18, Problem 6P, Interperiod Tax Allocation Quick Company reports the following revenues and expenses in its pretax , example  2

At the beginning of 2019, Quick had a deferred tax liability of $22,200 related to the depreciation difference and a deferred tax asset of $17,190 related to the warranty difference. The income tax rate for 2019 is 35%, but in 2018 Congress enacted a 30% rate for 2020 and future years.

Required:

  1. 1. Compute Quick’s taxable income for 2019.
  2. 2. Prepare Quick’s income tax journal entry for 2019. Assume no valuation allowance is necessary.
  3. 3. Prepare a condensed 2019 income statement for Quick.

1.

To determine

Determine the taxable income of Company Q for 2019

Explanation

Temporary Difference: Temporary difference refers to the difference of one income recognized by the tax rules and accounting rules of a company in different periods. Consequently the difference between the amount of assets and liabilities reported in the financial reports and the amount of assets and liabilities as per the company’s tax records is known as temporary difference.

Determine the taxable income of Company Q for the year 2019:

Company Q
Computation of Taxable income
ParticularsAmount
Pre-tax financial income$69,500

2.

To determine

Record the income tax entry for Company Q.

3.

To determine

Prepare a condensed income statement of Company Q for the year 2019.

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