The accounting records of Shinault Inc. show the following data for 2020 (its first year of operations). 1. Life insurance expense on officers was $9,000. 2. Equipment was acquired in early January for $300,000. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Shinault used a 30% rate to calculate depreciation. 3. Interest revenue on State of New York bonds totaled $4,000. 4. Product warranties were estimated to be $50,000 in 2020. Actual repair and labor costs related to the warranties in 2020 were $10,000. The remainder is estimated to be paid evenly in 2021 and 2022. 5. Gross profit on an accrual basis was $100,000. For tax purposes, $75,000 was recorded on the installment-sales method. 6. Fines incurred for pollution violations were $4,200. 7. Pretax financial income was $750,000. The tax rate is 30%. Instructions a. Prepare a schedule starting with pretax financial income in 2020 and ending with taxable income in 2020. b. Prepare the journal entry for 2020 to record income taxes payable, income tax expense, and deferred income taxes.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
The accounting records of Shinault Inc. show the following data for 2020 (its first year of operations).
1. Life insurance expense on officers was $9,000.
2. Equipment was acquired in early January for $300,000. Straight-line
3. Interest revenue on State of New York bonds totaled $4,000.
4. Product warranties were estimated to be $50,000 in 2020. Actual repair and labor costs related to the warranties in 2020 were $10,000. The remainder is estimated to be paid evenly in 2021 and 2022.
5. Gross profit on an accrual basis was $100,000. For tax purposes, $75,000 was recorded on the installment-sales method.
6. Fines incurred for pollution violations were $4,200.
7. Pretax financial income was $750,000. The tax rate is 30%.
Instructions
a. Prepare a schedule starting with pretax financial income in 2020 and ending with taxable income in 2020.
b. Prepare the
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
