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Required: A. Calculate taxable income for 2020.

Required: A. Calculate taxable income for 2020.

FINANCIAL ACCOUNTING
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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Please help me with part a.

### 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
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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