Question

In gathering information to prepare its 2021 financial statements, a company identified the following book-tax differences: The company accrued warranty expense of $27,000 on their financial statements but cannot deduct it on their income tax returns until the warranty claims are paid out. The company incurred $44,000 of meal and entertainment expenses during 2021. The company can only deduct 50% of these expenses on their tax returns. The company uses straight-line depreciation for financial accounting and accelerated depreciation for tax accounting. This year, the company recognized $40,000 of depreciation expense for financial purposes and $65,000 of depreciation expense for tax purposes. The company has several equity investments using fair value method. These investments increased in value by $35,000 during 2021. Any gains or losses on investments are not recognized for tax purposes until they are sold. The company’s 2021 tax rate is 20%, but the tax rate for future years is 25%. The company’s pretax financial income is $676,000. Based on this information, fill in the blanks below: The company’s 2021 taxable income is $ . The company’s 2021 journal entry for income taxes will include a debit to income tax expense for $ , a debit to deferred tax assets for $ , a credit to deferred tax liabilities for $ , and a credit to income taxes payable for $ . The company’s 2021 effective tax rate is % (round to the nearest tenth of a percent).

Answer 1