Question

1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $124,000. This difference will reverse in equal amounts of $31,000 over the years 2021–2024.

2. Interest received on municipal bonds was $9,300.

3. Rent collected in advance on January 1, 2020, totaled $64,200 for a 3-year period. Of this amount, $42,800 was reported as unearned at December 31, 2020, for book purposes. 4. The tax rates are 40% for 2020 and 35% for 2021 and subsequent years.

5. Income taxes of $297,000 are due per the tax return for 2020. 6. No deferred taxes existed at the beginning of 2020.

Prepare the income tax expense section of the income statement for 2020, beginning with “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

Income tax expense
Particulars	Amt $
Income before taxes(Refer WN-1)	742,500
Add/(Less)
Add: Interest on bonds	9,300
Less: Depreciation for tax computation	(124,000)
Add: Rental advance	42,800
Income before taxes after adjustments	670,600
Tax @ 40%	268,240
Income after tax	402,360
WN-1
Income before taxes
Income tax	297,000
Income before tax ( 297000*100/40)	742,500