Holden Company reported the following net income before taxes anddepreciation for the years indicated.2019: $100,000 2020: $70,000 2021: $120,000The Company purchased assets costing $120,000 on January 1, 2019. Theassets have a three year useful life and no salvage value. For tax purposesthe Company used an acceptable accelerated depreciation method thatresulted in depreciation expense of $55,000; $40,000; and $25,000 for thethree years respectively. For financial reporting purposes the straight-linemethod was used. A 20% tax rate was in effect for the three years.Instructions:Prepare the necessary calculations and make the end of year entries for theHolden Company for the years 2019, 2020, 2021. Holden Company reported the following net income before taxes anddepreciation for the years indicated.2019: $100,000 2020: $70,000 2021: $120,000The Company purchased assets costing $120,000 on January 1, 2019. Theassets have a three year useful life and no salvage value. For tax purposesthe Company used an acceptable accelerated depreciation method thatresulted in depreciation expense of $55,000; $40,000; and $25,000 for thethree years respectively. For financial reporting purposes the straight-linemethod was used. A 20% tax rate was in effect for the three years.Instructions:Prepare the necessary calculations and make the end of year entries for theHolden Company for the years 2019, 2020, 2021.

Any company has to file taxes as specified by the income tax act. However, there might be differences due to depreciation and deferred liability. It’s essential to account for these items and record entries to reflect a true picture of accounts and pay taxes accordingly.Computation of Taxable Income and Income Tax Payable Particulars 2019 2020 2021 Accounting income before taxes and depreciation $100,000 $70,000 $120,000 Less: Depreciation as per Income tax $55,000 $40,000 $25,000 Taxable Income $45,000 $30,000 $95,000 Income Tax Payable (20% of taxable income) $9,000 $6,000 $19,000 Computation of Deferred Tax Particulars 2019 2020 2021 Depreciation as per Income Tax $55,000 $40,000 $25,000 Depreciation as per Books ($120000/3 =$40,000) $40,000 $40,000 $40,000 Taxable Temporary differences $15,000 $0 $0 Reversible Temporary differences - - $15,000 Deferred tax liability to be recorded $3,000 $0 $0 Reversal of Deferred tax liability $0 $0 $3,000 In the books of Holden company Journal entries Date Particulars Debit Credit 12/31/2019 Income Tax Expense a/c Dr $12,000.00 To Income tax Payable a/c $9,000 To Deferred tax liability a/c $3,000 (To record income tax and deferred tax for 2019) 12/31/2020 Income Tax Expense a/c Dr $6,000 To Income tax Payable a/c $6,000 (To record income tax and deferred tax for 2020) 12/31/2021 Income Tax Expense a/c Dr $16,000 Deferred tax liability a/c Dr $3,000 To Income tax Payable a/c $19,000 (To record income tax and deferred tax for 2021)

Answered: net income before taxes and…

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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Holden Company reported the following net income before taxes and
depreciation for the years indicated.
2019: $100,000 2020: $70,000 2021: $120,000
The Company purchased assets costing $120,000 on January 1, 2019. The
assets have a three year useful life and no salvage value. For tax purposes
the Company used an acceptable accelerated depreciation method that
resulted in depreciation expense of $55,000; $40,000; and $25,000 for the
three years respectively. For financial reporting purposes the straight-line
method was used. A 20% tax rate was in effect for the three years.

Instructions:
Prepare the necessary calculations and make the end of year entries for the
Holden Company for the years 2019, 2020, 2021.

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