Recording and Reporting Temporary and Permanent Differences The records of Lane Corporation show the following pretax GAAP income for the past 4 years. Year 1 Year 2 Year 3 Year 4 Pretax GAAP income $180,000 $184,000 $190,000 $196,000 The income tax rate is 25%. The company had the following differences between GAAP basis and tax basis income. • For GAAP purposes, installment sales receivable is $60,000 on December 31 of Year 1. On the tax return, $20,000 will be recognized each year, Year 2 through Year 4, as cash is collected. • For GAAP purposes, warranty expenses of $8,000 are accrued in Year 1. On the tax return, $2,000 will be deducted each year, Year 1 through Year 4, as expenditures are made related to warranties. The company also recorded interest revenue of $2,500 each year on municipal bonds, which is not taxable. Required
Recording and Reporting Temporary and Permanent Differences The records of Lane Corporation show the following pretax GAAP income for the past 4 years. Year 1 Year 2 Year 3 Year 4 Pretax GAAP income $180,000 $184,000 $190,000 $196,000 The income tax rate is 25%. The company had the following differences between GAAP basis and tax basis income. • For GAAP purposes, installment sales receivable is $60,000 on December 31 of Year 1. On the tax return, $20,000 will be recognized each year, Year 2 through Year 4, as cash is collected. • For GAAP purposes, warranty expenses of $8,000 are accrued in Year 1. On the tax return, $2,000 will be deducted each year, Year 1 through Year 4, as expenditures are made related to warranties. The company also recorded interest revenue of $2,500 each year on municipal bonds, which is not taxable. Required
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Recording and Reporting Temporary and Permanent Differences
The records of Lane Corporation show the following pretax GAAP income for the past 4 years.
Year 1 Year 2
Year 3 Year 4
Pretax GAAP income $180,000 $184,000 $190,000 $196,000
Required
The income tax rate is 25%. The company had the following differences between GAAP basis and tax basis income.
• For GAAP purposes, installment sales receivable is $60,000 on December 31 of Year 1. On the tax return, $20,000 will be recognized each year,
Year 2 through Year 4, as cash is collected.
• For GAAP purposes, warranty expenses of $8,000 are accrued in Year 1. On the tax return, $2,000 will be deducted each year, Year 1 through
Year 4, as expenditures are made related to warranties.
The company also recorded interest revenue of $2,500 each year on municipal bonds, which is not taxable.
Schedules
Date
Dec. 31, Year 1
Date
Dec. 31, Year 2
c. Prepare the journal entries to record income tax expense for Year 1, Year 2, Year 3, and Year 4.
Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank
(zero).
Note: Round each amount to the nearest whole dollar.
Date
Dec. 31, Year 3
Date
Dec. 31, Year 4
Journal Entries Financial Statement Presentation
Account Name
To record income tax expense
Account Name
To record income tax expense
Account Name
To record income tax expense
Account Name
To record income tax expense
3
Show Transcribed Text
V
V
V
V
Dr.
Dr.
Dr.
Dr.
0
0
0
0
C
0
0
0
0
0
0
0
0
0
0
0
0
Cr.
Cr.
Cr.
Cr.
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
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