Rainbow Corp. and Trout Co. are related fortax purposes. Rainbow operates as a retailoutlet and Trout Co. operates as a wholesaleunit. During 2020, Rainbow Corp. purchasedinventory for $5,000. The inventory had amarket value of $7,500 in the wholesalemarket, and a value of $11,000 in the retailmarket. Rainbow sold the inventory to itssister corporation, Trout, for $5,000. Troutthen sold the inventory to other retail outletsfor $11,000.Required:A) Determine the total business income for taxpurposes for both Rainbow and Trout in 2020based on the facts.B) How would your answer in A) differ ifRainbow had sold the inventory to customersat the retail price instead of selling theinventory to Trout?

Rainbow Corp. and Trout Co. are related for tax purposes. Rainbow operates as a retail outlet and Trout Co. operates as a wholesal unit. During 2020, Rainbow Corp. purchase inventory for $5,000. The inventory had a market value of $7500 in the wholesale

Rainbow Corp. and Trout Co. are related for tax purposes. Rainbow operates as a retail outlet and Trout Co. operates as a wholesal unit. During 2020, Rainbow Corp. purchase inventory for $5,000. The inventory had a market value of $7500 in the wholesale

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Bonita Inc. reports the following pretax income (loss) for both book and tax purposes. Pretax Year Income (Loss) Tax Rate 2018 $124,000 20 % 2019 86,000 20 % 2020 (89,000 ) 25 % 2021 126,000 25 % The tax rates listed were all enacted by the beginning of 2018. Prepare the journal entries for years 2018-2021 to record income tax expense (benefit) and income taxes payable, and the tax effects of the loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-half of the benefits of the loss carryforward will not be realized. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
At the beginning of 2020, Wertz Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed- contract method for tax purposes. For years prior to 2020, pretax income under the two methods was as follows: percentage-of- completion $120,000, and completed-contract $80,000. The tax rate is 20%. Prepare Wertz's 2020 journal entry to record the change in accounting principle.
Jennings Inc. reported the following pretax income (loss) and related tax rates during the years 2019–2022. Pretax Income (loss) Tax Rate 2019 $80,000 40 % 2020 (180,000) 40 % 2021 230,000 20 % 2022 100,000 20 % Pretax financial income (loss) and taxable income (loss) were the same for all years since Jennings began business. The tax rates from 2019–2022 were enacted in 2019. Prepare the journal entries for the years 2020–2022 to record income taxes payable (refundable), income tax expense (benefit), and the tax effects of the loss carryforward. Assume that Jennings expects to realize the benefits of any loss carryforward in the year that immediately follows the loss year.
Lewes Company appropriately uses the installment sales method for tax purposes and the accrual method for revenue recognition for accounting purposes. Pertinent data at December 31, 2016, the close of the first year of operations, are as follows: Revenue Recognized Revenue Recognized Customer for Accounting Purposes for Tax Purposes Lowe's Builders $200,000 $100,000 Top Down Plumbing 500,000 350,000 Glass Plus Windows 600,000 350,000 Lewes's tax rate is 30%. What amount should be included in the deferred tax account at December 31, 2016 for these installment sales?
Isaac Inc. began operations in January 2021. For some property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments. In 2021, Isaac had $676 million in sales of this type. Scheduled collections for these sales are as follows: 2021 $ 83 million 2022 137 million 2023 129 million 2024 162 million 2025 165 million $ 676 million Assume that Isaac has a 25% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses, what deferred tax liability would Isaac report in its year-end 2021 balance sheet?
In 2020, Sunland Corporation had pretax financial income of $185,000 and taxable income of $117,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 20%.Compute the amount to be reported as income taxes payable at December 31, 2020. Income taxes payable at December 31, 2020 $enter the amount to be reported as income taxes payable at December 31, 2017
Christopher Corporation is subject to a 40% income tax rate. The following amounts were taken from the records: income before income taxes $100,000 and taxable income $120,000. Instructions: record the adjusting entry.
Sheridan Company reported the following results for the year ended December 31, 2020, its first year of operations: Income (per books before income taxes) $3343000 Taxable income 4466000 The disparity between book income and taxable income is attributable to a temporary difference, which will reverse in 2021. What should Sheridan record as a net deferred tax asset or liability for the year ended December 31, 2020, assuming that the enacted tax rates in effect are 35% in 2020 and 30% in 2021? O $393050 deferred tax liability $336900 deferred tax liability $393050 deferred tax asset $336900 deferred tax asset
At the end of 2022, its first year of operations, Zekany's reconciliation of pretax accounting income to taxable income is as follows: Pretax accounting income $ 210,000 Permanent difference (14,200 ) 195,800 Temporary difference-depreciation (19,100 ) Taxable income $ 176,700 Zekany's tax rate is 25%. No estimated taxes have been paid. What should Zekany report as income tax payable for 2022?
Ayayai Corporation began operations in 2020 and reported pretax financial income of $230,000 for the year. Ayayai’s tax depreciation exceeded its book depreciation by $47,000. Ayayai’s tax rate for 2020 and years thereafter is 30%. Assume this is the only difference between Ayayai’s pretax financial income and taxable income.Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable. Show how the deferred tax liability will be classified on the December 31, 2020, balance sheet.
Metlock Company reported the following pretax financial income (loss) for the years 2018-2022. 2018 $235,200 2019 343,000 2020 117,600 2021 (558,600) 2022 176,400 Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 34% for 2018 and 2019, and 20% for 2020-2022. Assume the carryback provision is used first for net operating losses. SUPPO
In 2020, Sandhill Corporation had pretax financial income of $172,000 and taxable income of $109,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 20%.Compute the amount to be reported as income taxes payable at December 31, 2020.