Southern Atlantic Distributors began operations in January 2021 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2021, 30% in 2022, and 20% in 2023. Pretax accounting income for 2021 was $300,000, which includes interest revenue of $40,000 from municipal governmental bonds. The enacted tax rate is 25%.Required:Assuming no differences between accounting income and taxable income other than those described above:1. Prepare the journal entry to record income taxes in 2021.2. What is Southern Atlantic’s 2021 net income?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Southern Atlantic Distributors began operations in January 2021 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line
Required:
Assuming no differences between accounting income and taxable income other than those described above:
1. Prepare the
2. What is Southern Atlantic’s 2021 net income?
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