mpson Ltd was established on 1 July 2019 with share capital totalling $132,000. One year later at 30 June 2020 the trial balance of the company was as follows: Account Debit Credit Cash 24,000 Accounts receivable 37,500 Allowance for doubtful debts 200 Interest receivable 100 Inventory 20,000 Prepaid insurance 300 Machinery (at cost) 79,000 Accumulated depreciation - Machinery 5,900 Vehicles 11,000 Accumulated depreciation - Vehicles 100 Goodwill 45,000 Accumulated impairment loss 300 Investments 25,000 Accounts payable 15,000 Rent payable 6,000 Provision for annual leave 1,800 Provision for services warranties 600 Share capital 132,000 Sales revenue 650,000 Interest revenue 500 Dividend revenue 300 Exempt income 400 Capital profit on sale of land 700 Cost of sales 175,000 Depreciation 6,000 Goodwill impairment loss 300 Salaries & wages 120,000 Annual leave 1,800 Rent 72,000 Insurance 1,200 Entertainment 400 Fines and penalties 100 Fringe benefits tax 200 Warranty expense 600 Doubtful debts 200 Other expenses 194,100 TOTAL 813,800 813,800

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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Simpson Ltd was established on 1 July 2019 with share capital totalling $132,000.

One year later at 30 June 2020 the trial balance of the company was as follows:

Account	Debit	Credit
Cash	24,000
Accounts receivable	37,500
Allowance for doubtful debts		200
Interest receivable	100
Inventory	20,000
Prepaid insurance	300
Machinery (at cost)	79,000
Accumulated depreciation - Machinery		5,900
Vehicles	11,000
Accumulated depreciation - Vehicles		100
Goodwill	45,000
Accumulated impairment loss		300
Investments	25,000
Accounts payable		15,000
Rent payable		6,000
Provision for annual leave		1,800
Provision for services warranties		600
Share capital		132,000
Sales revenue		650,000
Interest revenue		500
Dividend revenue		300
Exempt income		400
Capital profit on sale of land		700
Cost of sales	175,000
Depreciation	6,000
Goodwill impairment loss	300
Salaries & wages	120,000
Annual leave	1,800
Rent	72,000
Insurance	1,200
Entertainment	400
Fines and penalties	100
Fringe benefits tax	200
Warranty expense	600
Doubtful debts	200
Other expenses	194,100
TOTAL	813,800	813,800

Additional information:

For tax purposes, depreciation on machinery is $14,000 and for vehicles $300, for the year ended 30 June 2020.
Doubtful debts, annual leave and service warranties are expensed in the year ending 30 June 2020 but are not tax deductible for tax purposes until paid.
Simpson Ltd has accrued annual leave entitlements of $1,800 in calculating net profit for the year ended 30 June 2020.
Service warranty expense is only deductible as a tax deduction when claimed by customers.
The company accrues doubtful debts expense as soon as it appears on a customer’s account as uncollectible. However, the bad debt is not allowable as a tax deduction until all avenues to collect the account have been exhausted.
The tax rate is 30% and taxable income is $79,500.

Required:

Complete the general journal entry to account for income tax.

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