Condensed income statements for Prince Inc. for Year 1 and Year 2 follow. GAAP Tax Year 1 Year 2 Year 1 Year 2 Service revenue $0 $10,000 $10,000 $0 Sales revenue 180,000 190,000 180,000 190,000 Environmental fines (10,000) (10,000) 0 0 Warranty expense (8,000) 0 0 (8,000) Other expenses (134,000) (171,000) (134,000) (171,000) Pretax GAAP income $28,000 $19,000 Taxable income $56,000 $11,000 Additional information • Environmental fines are not deductible for income tax purposes. • Amount collected in Year 1 related to deferred service revenue ($10,000) was taxable in Year 1. • Accrued warranty costs of $8,000 are not deductible for income tax purposes until Year 2 when the expenditures are made. • Income tax rate is 25% for both years. • At the beginning of Year 1, deferred tax asset and liability balances were zero. Required Deferred Taxes and Income Tax Payable Journal Entries Financial Statement Presentation c. Record the income tax journal entry on December 31 of Year 1. Date Account Name Dec. 31, Year 1 Income Tax Expense N/A Income Tax Payable To record income tax expense d. Record the income tax journal entry on December 31 of Year 2. Date Account Name Dec. 31, Year 2 Income Tax Expense Income Tax Payable To record income tax expense > > > Dr. Cr. 14,000 0 × 0 0 × 0 14,000 ✔ Dr. Cr. 3,250 0 × 0 0 × 0 3,250 x
Condensed income statements for Prince Inc. for Year 1 and Year 2 follow. GAAP Tax Year 1 Year 2 Year 1 Year 2 Service revenue $0 $10,000 $10,000 $0 Sales revenue 180,000 190,000 180,000 190,000 Environmental fines (10,000) (10,000) 0 0 Warranty expense (8,000) 0 0 (8,000) Other expenses (134,000) (171,000) (134,000) (171,000) Pretax GAAP income $28,000 $19,000 Taxable income $56,000 $11,000 Additional information • Environmental fines are not deductible for income tax purposes. • Amount collected in Year 1 related to deferred service revenue ($10,000) was taxable in Year 1. • Accrued warranty costs of $8,000 are not deductible for income tax purposes until Year 2 when the expenditures are made. • Income tax rate is 25% for both years. • At the beginning of Year 1, deferred tax asset and liability balances were zero. Required Deferred Taxes and Income Tax Payable Journal Entries Financial Statement Presentation c. Record the income tax journal entry on December 31 of Year 1. Date Account Name Dec. 31, Year 1 Income Tax Expense N/A Income Tax Payable To record income tax expense d. Record the income tax journal entry on December 31 of Year 2. Date Account Name Dec. 31, Year 2 Income Tax Expense Income Tax Payable To record income tax expense > > > Dr. Cr. 14,000 0 × 0 0 × 0 14,000 ✔ Dr. Cr. 3,250 0 × 0 0 × 0 3,250 x
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 22P
Related questions
Question
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Transcribed Image Text:Condensed income statements for Prince Inc. for Year 1 and Year 2 follow.
GAAP
Tax
Year 1
Year 2 Year 1
Year 2
Service revenue
$0
$10,000
$10,000
$0
Sales revenue
180,000
190,000 180,000
190,000
Environmental fines
(10,000) (10,000)
0
0
Warranty expense
(8,000)
0
0 (8,000)
Other expenses
(134,000) (171,000) (134,000) (171,000)
Pretax GAAP income $28,000 $19,000
Taxable income
$56,000 $11,000
Additional information
• Environmental fines are not deductible for income tax purposes.
• Amount collected in Year 1 related to deferred service revenue ($10,000) was taxable in Year 1.
• Accrued warranty costs of $8,000 are not deductible for income tax purposes until Year 2 when the expenditures are made.
• Income tax rate is 25% for both years.
• At the beginning of Year 1, deferred tax asset and liability balances were zero.
Required
Deferred Taxes and Income Tax Payable
Journal Entries
Financial Statement Presentation
c. Record the income tax journal entry on December 31 of Year 1.
Date
Account Name
Dec. 31, Year 1
Income Tax Expense
N/A
Income Tax Payable
To record income tax expense
d. Record the income tax journal entry on December 31 of Year 2.
Date
Account Name
Dec. 31, Year 2 Income Tax Expense
Income Tax Payable
To record income tax expense
> > >
Dr.
Cr.
14,000
0 ×
0
0 ×
0
14,000 ✔
Dr.
Cr.
3,250
0 ×
0
0 ×
0
3,250 x
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