Gordon Company was started on January 1, 2010 and has two temporary differences between its income tax expense and income taxes payable. The information is shown below: 2010 2011 2012Pre-tax financial income 840,000 910,000 945,000Excess of depreciation expense on tax return(30,000) (40,000) (20,000)Excess of warranty expense in financial income20,000 10,000 8,000Taxable income 830,000 880,000 933,000 The income tax rate is 40% for all years. Instructions: Prepare the journal entry to record income tax expense, deferred taxes and income tax payable for 2010, 2011, and 2012. Indicate how deferred taxes will be reported on the 2012 balance sheet. Gordon’s product warranty is for 12 months. Prepare the income tax expense section of the income statement for 2012, beginning with the line, “Pretax financial income.”

Answered: Gordon Company was started on January…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Gordon Company was started on January 1, 2010 and has two temporary differences between its income tax expense and income taxes payable. The information is shown below:

				2010		2011		2012
Pre-tax financial income		840,000		910,000		945,000
Excess of depreciation expense on tax return	(30,000)	(40,000)		(20,000)
Excess of warranty expense in financial income	20,000	10,000		8,000
Taxable income			830,000		880,000		933,000

The income tax rate is 40% for all years.

Instructions:

Prepare the journal entry to record income tax expense, deferred taxes and income tax payable for 2010, 2011, and 2012.

Indicate how deferred taxes will be reported on the 2012 balance sheet. Gordon’s product warranty is for 12 months.

Prepare the income tax expense section of the income statement for 2012, beginning with the line, “Pretax financial income.”

Expert Solution

Step 1

Journal entry refers to the first step in the accounting process, which signifies recording of financial transactions or data in form of entries, on basis of accounting rules, procedures, equation, concepts, conventions and standards.

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