**Topic: Taxable Income and Accounting for Taxes** **Case Study: Havaci SpA** --- **Scenario:** Havaci SpA reports a pretax financial income of €80,000 for the year 2022. Several factors lead to differences between taxable income and pretax financial income: 1. **Depreciation Differences:** Depreciation on the tax return is greater than the depreciation reported on the income statement by €16,000. 2. **Rent Income Differences:** Rent collected as per the tax return exceeds the rent revenue on the income statement by €27,000. 3. **Pollution Fines:** Fines for pollution, appearing as a €11,000 expense on the income statement. **Tax Rate Information:** - Havaci’s tax rate stands at 30% consistently across all years. - The company anticipates reporting taxable income in all future years. - At the start of 2022, there are no deferred taxes. --- **Instructions for Computation:** a. **Taxable Income and Income Taxes Payable:** - Calculate the taxable income for 2022. - Determine the income taxes payable. b. **Journal Entry Preparation:** - Record the necessary journal entries for income tax expenses, deferred income taxes, and income taxes payable for 2022. c. **Income Statement Preparation:** - Prepare the income tax expense section for the year 2022, starting with "Income before income taxes." d. **Effective Income Tax Rate Calculation:** - Compute the effective income tax rate for the year 2022. --- This section serves as a practical example for accounting students to understand the implications of timing differences in accounting and tax reporting and provides a guided approach to calculating and recording income taxes.
**Topic: Taxable Income and Accounting for Taxes** **Case Study: Havaci SpA** --- **Scenario:** Havaci SpA reports a pretax financial income of €80,000 for the year 2022. Several factors lead to differences between taxable income and pretax financial income: 1. **Depreciation Differences:** Depreciation on the tax return is greater than the depreciation reported on the income statement by €16,000. 2. **Rent Income Differences:** Rent collected as per the tax return exceeds the rent revenue on the income statement by €27,000. 3. **Pollution Fines:** Fines for pollution, appearing as a €11,000 expense on the income statement. **Tax Rate Information:** - Havaci’s tax rate stands at 30% consistently across all years. - The company anticipates reporting taxable income in all future years. - At the start of 2022, there are no deferred taxes. --- **Instructions for Computation:** a. **Taxable Income and Income Taxes Payable:** - Calculate the taxable income for 2022. - Determine the income taxes payable. b. **Journal Entry Preparation:** - Record the necessary journal entries for income tax expenses, deferred income taxes, and income taxes payable for 2022. c. **Income Statement Preparation:** - Prepare the income tax expense section for the year 2022, starting with "Income before income taxes." d. **Effective Income Tax Rate Calculation:** - Compute the effective income tax rate for the year 2022. --- This section serves as a practical example for accounting students to understand the implications of timing differences in accounting and tax reporting and provides a guided approach to calculating and recording income taxes.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please answer part (d)
Transcribed Image Text:**Topic: Taxable Income and Accounting for Taxes**
**Case Study: Havaci SpA**
---
**Scenario:**
Havaci SpA reports a pretax financial income of €80,000 for the year 2022. Several factors lead to differences between taxable income and pretax financial income:
1. **Depreciation Differences:** Depreciation on the tax return is greater than the depreciation reported on the income statement by €16,000.
2. **Rent Income Differences:** Rent collected as per the tax return exceeds the rent revenue on the income statement by €27,000.
3. **Pollution Fines:** Fines for pollution, appearing as a €11,000 expense on the income statement.
**Tax Rate Information:**
- Havaci’s tax rate stands at 30% consistently across all years.
- The company anticipates reporting taxable income in all future years.
- At the start of 2022, there are no deferred taxes.
---
**Instructions for Computation:**
a. **Taxable Income and Income Taxes Payable:**
- Calculate the taxable income for 2022.
- Determine the income taxes payable.
b. **Journal Entry Preparation:**
- Record the necessary journal entries for income tax expenses, deferred income taxes, and income taxes payable for 2022.
c. **Income Statement Preparation:**
- Prepare the income tax expense section for the year 2022, starting with "Income before income taxes."
d. **Effective Income Tax Rate Calculation:**
- Compute the effective income tax rate for the year 2022.
---
This section serves as a practical example for accounting students to understand the implications of timing differences in accounting and tax reporting and provides a guided approach to calculating and recording income taxes.
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