Question

EX. 1 ABC Company reports pretax financial income of $140,000 for 2019. The following items cause...

EX. 1

ABC Company reports pretax financial income of $140,000 for 2019. The following items cause taxable income to be different than pretax financial income.

  1. Depreciation on the tax return is greater than depreciation on the income statement by $30,000 (which will reverse in 4 years).
  2. Rent collected on the tax return is greater than rent earned on the income statement by $15,000 (which will reverse in 2019).
  3. Fines related to tax returns filed after the due date for filing, appear as an expense of $8,000 on the income statement.

ABC Company’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2019.

Required:

  1. Compute taxable income for the year 2019.
  2. Prepare the journal entry to record income tax expense, deferred income taxes and income taxes payable for 2019.
  3. How will income taxes be presented in the 2018 Income statement and the Balance Sheet as of December 31, 2019?
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