Question

Southern atlantic distributors began operations in january 2018 and purchased a delivery truck for $100,000. Southern atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 45% of cost in 2018, 30% in 2019, and 25% in 2020. Pretax accounting income for 2018 was $600,000,which includes interest revenue of $80,000 from municipal bonds. The enacted take rate is 45%. Assuming no difference between accounting income and taxable income other than those described above :required: 1. Complete the following table given and prepare the journal entry income taxes in 2018. 2. What is Southern Atlantic's 2018 net income?

Answer 1

Solution:-

1. Complete the following table given and prepare the journal entry income taxes in 2018:-

		Tax rate	Tax	Recorded as
Pretax accounting income	600,000
Permanente differences	80,000
Income subject to taxation	520,000	45%	234,000
Temproary difference	20,000	45%	9,000	Deferred tax liability
Income taxable in current year	500,000	45%	225,000	Income tax payable

Journal entry:-

Account titles and explanation	Debit	Credit
Incomet tax expenses	234,000
Deferred tax liability		9,000
Income tax payable		225,000

2. What is Southern Atlantic's 2018 net income:-

Pre tax income	600,000
Income tax expenses	(234,000)
Net Income	366,000