Change in Tax Rates, Permanent Difference, Reconciliation of Statutory Tax Rate to Effective Tax Rate. Using the same information provided in E17-8, assume that Meyer-Swift invested in tax-free municipal bonds. The bonds pay interest of $1,000 each year In addition, a new tax law enacted at the beginning of Year 2 reduced the corporate tax rate to 30%.
Required
- a. Prepare the journal entries required to record the tax provision for all 3 years, as well as the
journal entry needed to record the effect of the tax rate change on anydeferred tax accounts - b. Determine the net income reported on the income statement for all 3 years
- c. Prepare the footnote in dollars and percentages required to reconcile the company’s federal statutory income tax rate with its effective tax rate
E17-8 Temporary Differences.
Year 1 | Year 2 | Year 3 | ||||
Account | GAAP | Tax | GAAP | Tax | GAAP | Tax |
Sales | $5,000 | $5,000 | $6,200 | $6,200 | $7800 | $7800 |
Gross profit on installment sates | 3,200 | 0 | 0 | 0 | 0 | 0 |
Taxable portion of cash collected on installment sates | 700 | 1,500 | 1,000 | |||
Operating expenses | (500) | (500) | (620) | (620) | (780) | (780) |
Income before tax | $7,700 | $5,580 | $7020 | |||
Taxable income | $5,200 | $7,080 | $8,020 | |||
Tax rate | ×35% | × 35% | × 35% | |||
Tax payable | $1,820 | $2,478 | $2,807 |
Required
- a. Prepare the journal entries required to record the tax expense for all 3 years.
- b. Determine the net income reported on the income statement for the 3 years.
Want to see the full answer?
Check out a sample textbook solutionChapter 17 Solutions
Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition
- Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow: Rascon Parcel Direct materials cost per unit $ 11.00 $ 5.00 Direct labor cost per unit $ 3.10 $ 3.50 Direct labor-hours per unit 0.10 0.15 Number of units produced 17,000 50,000 These products are customized to some degree for specific customers. Required: The company's manufacturing overhead costs for the year are expected to be $266,800. 2. Management is considering an activity-based absorption costing system in which half of the overhead would continue to be allocated based on direct labor-hours and half would be allocated based on engineering design time. This time is expected to be distributed as follows during the upcoming year: Rascon Parcel Total Engineering design time (in hours) 4,700 4,700 9,400 Compute the unit product costs for the two products using…arrow_forwardHello teacher please help me Accounting questionarrow_forwardFinancial Accounting Question please true answerarrow_forward
- The following is selected information from C Corporation for the fiscal year ending October 31, 2014. Provide answer the general accounting questionarrow_forwardGeneral accountingarrow_forwardOn January 1, 2020, Cullumber Inc. Issued.... If you give me correct answer this financial accounting question I will give you helpful ratearrow_forward
- Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College