The records of Boomer Corp, in its first year of operations, at the end of 20X8, provided the following data related to income taxes. Golf club dues expense in 20X8, $10,000, properly recorded for accounting purposes but not tax deductible at any time Investment revenue in 20X8, $325,000, properly recorded for accounting purposes, but not taxable at any time. Estimated expense for warranty costs, $70,000; accrued for accounting purposes at the end of 20X8; to be reported for income tax purposes when paid. There were no warranty cost incurred in 20X8 Gain on disposal of land, $240,000; recorded for accounting purposes at the end of 20X8; to be reported as a capital gain for income tax purposes when collected at the end of 20X10 Costs incurred for development costs, $50,000; deducted for income tax purposes; recognized for accounting purposes as depreciated. There was no depreciation of development costs in 20X8 Equipment purchase in 20X8, $1,500,000; depreciation $100,000 recorded for accounting purposes in 20X8; CCA of $150,000 was deducted for income tax purposes in 20X8 Accounting earnings (from the SCI) for 20X8 was $1,200,000; the income tax rate is 38%. There were no deferred tax amounts as of the beginning 20X8 Required: Are the individual differences listed above permanent differences or temporary differences? Explain why. Calculate Taxable Income and Tax payable. Prepare the journal entry to record income tax at the end of 20X8

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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The records of Boomer Corp, in its first year of operations, at the end of 20X8, provided the following data related to income taxes.

Golf club dues expense in 20X8, $10,000, properly recorded for accounting purposes but not tax deductible at any time
Investment revenue in 20X8, $325,000, properly recorded for accounting purposes, but not taxable at any time.
Estimated expense for warranty costs, $70,000; accrued for accounting purposes at the end of 20X8; to be reported for income tax purposes when paid. There were no warranty cost incurred in 20X8
Gain on disposal of land, $240,000; recorded for accounting purposes at the end of 20X8; to be reported as a capital gain for income tax purposes when collected at the end of 20X10
Costs incurred for development costs, $50,000; deducted for income tax purposes; recognized for accounting purposes as depreciated. There was no depreciation of development costs in 20X8
Equipment purchase in 20X8, $1,500,000; depreciation $100,000 recorded for accounting purposes in 20X8; CCA of $150,000 was deducted for income tax purposes in 20X8

Accounting earnings (from the SCI) for 20X8 was $1,200,000; the income tax rate is 38%. There were no deferred tax amounts as of the beginning 20X8

Required:

Are the individual differences listed above permanent differences or temporary differences? Explain why.
Calculate Taxable Income and Tax payable.
Prepare the journal entry to record income tax at the end of 20X8

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

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