Question

Over a recent three-year period, Travis Country Enter- prises (TCE) had the following pretax accounting income and taxable income amounts.
For each year, the difference between TCE’s pretax accounting income and its taxable income was due to its use of different depreciation methods for financial accounting and taxation purposes. Recently, a local attorney, who is a new member of TCE’s board of directors, reviewed the company’s financial records. At the next board meeting, this individual suggested that the use of different accounting methods for financial accounting and taxation purposes was, in her opinion, unethical.
Required:
(a) Is it unethical to use different accounting methods for financial accounting and taxation purposes? Why or why not?
(b) TCE’s effective tax rate in recent years has been 40 percent for both financial accounting and taxation purposes. Compute the company’s income tax expense and income taxes payable for Years 1–3. Some of the temporary differences from years 1 and 2 reversed in year 3.
(c) Prepare an appropriate journal entry to record TCE’s income tax expense for Years 1–3.


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  • CreatedMarch 27, 2015
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