The following information has been obtained for Gocker Corporation. 1. Prior to 2025, taxable income and pretax
Question:
The following information has been obtained for Gocker Corporation.
1. Prior to 2025, taxable income and pretax financial income were identical.
2. Pretax financial income is $1,700,000 in 2025 and $1,400,000 in 2026.
3. On January 1, 2025, equipment costing $1,200,000 is purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes.
4. Interest of $60,000 was earned on tax-exempt municipal obligations in 2026.
5. Included in 2026 pretax financial income is a gain on discontinued operations of $200,000, which is fully taxable.
6. The tax rate is 20% for all periods.
7. Taxable income is expected in all future years.
Instructions
a. Compute taxable income and income taxes payable for 2026.
b. Prepare the journal entry to record 2026 income tax expense, income taxes payable, and deferred taxes.
c. Prepare the bottom portion of Gocker’s 2026 income statement, beginning with “Income from continuing operations before income taxes.”
d. Indicate how deferred income taxes should be presented on the December 31, 2026, balance sheet.
Step by Step Answer:
Intermediate Accounting
ISBN: 9781119790976
18th Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield