Required: A. Calculate taxable income for 2020.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please help me with part a.

Transcribed Image Text:### Redding Corporation Tax Analysis for 2020
**Description:**
Redding Corporation has $75,000 of income before taxes in its 2020 accounting records. In computing income tax expense, Redding makes the following observations of differences between the accounting records and the tax return:
1. **Depreciation Method:**
- An accelerated depreciation method is used for tax purposes.
- In 2020, Redding reports $6,000 more depreciation expense for tax purposes than it shows in the accounting records.
- The excess depreciation is expected to reverse in 2023.
2. **Rental Income Collection:**
- In 2020, Redding collected $60,000 from a business that is renting a portion of its warehouse.
- The $60,000 covers the rental payment for the four years 2021-2024, and therefore no rental revenue has been recognized for 2020.
- However, XYZ must pay taxes on the entire amount collected in 2020.
The enacted tax rate in 2020 is 21%. It is 23% in 2021 and is 24% in 2022 and years following.
---
**Required:**
A. **Calculate Taxable Income for 2020.**
B. **Prepare the Journal Entry necessary to record income taxes at the end of 2020.**
C. **Explain how any deferred tax amounts should be reported on a classified balance sheet.**
---
### Solutions:
**A. Calculate Taxable Income for 2020:**
1. **Income before taxes in accounting records:** $75,000
2. **Adjustments:**
- Add back excess depreciation expense: $6,000
- Add rental income collected: $60,000
3. **Taxable Income Calculation:**
```
Taxable Income = $75,000 + $6,000 + $60,000
= $141,000
```
**B. Prepare the Journal Entry for Income Taxes at the end of 2020:**
1. **Calculate Tax Expense:**
```
Tax Expense = Taxable Income * Tax Rate
= $141,000 * 21%
= $29,610
```
2. **Journal Entry:**
- **Debit**: Income Tax Expense $29,610
- **Credit**: Income Tax Payable $29
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