Question

During 2020, Martinez Co.’s first year of operations, the company reports pretax financial income at $236,700....

During 2020, Martinez Co.’s first year of operations, the company reports pretax financial income at $236,700. Martinez’s enacted tax rate is 45% for 2020 and 20% for all later years. Martinez expects to have taxable income in each of the next 5 years. The effects on future tax returns of temporary differences existing at December 31, 2020, are summarized as follows.

Future Years

2021

2022

2023

2024

2025

Total

Future taxable (deductible) amounts:
   Installment sales

$30,900

   

$30,900

   

$30,900

           

$92,700

   Depreciation

6,100

6,100

6,100

$6,100

$6,100

30,500

   Unearned rent

(52,900)

(52,900)

(105,800)

1. Compute taxable income for 2020.

2. Prepare the journal entry to record income taxes payable, deferred taxes, and income tax expense for 2020

Homework Answers

Answer #1

ANSWER:-

a) COMPUTATION OF TAXABLE INCOME FOR 2020

Particulars Amount in $
Pretax financial income 236,700
(-) Installment sales 92,700
(-) Depreciation 30,500
(+) Unearned Rent 105,800
Total Taxable Income for 2020 219,300

b) Prepare the journal entry to record income taxes payable, deferred taxes, and income tax expense for 2020

Account Titles and Explanation

Debit

Credit

Income Tax Expense

$102,165

Deffered Tax Assets

$21,160

Deferred Tax Liability

$24,640

Income Tax Payable[219,300*45%]

$98,685

Working Notes:-

Temporary Difference

Future Taxable
(Deductible) Amounts

Deferred Tax Asset

Deferred Tax Liability

Installment sales

92,700*20%

$18,540

Depreciation

30,500*20%

$6,100

Unearned rent

(105,800)*20%

($21,160)

  

($21,160)

$24,640

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