Refer to the facts in A16-19. Data From A16-19 In its first year of operations, Martha Enterprises
Question:
Refer to the facts in A16-19.
Data From A16-19
In its first year of operations, Martha Enterprises Corp. reported the following information:
a. Income before income taxes was $620,000.
b. The company acquired capital assets costing $1,800,000; depreciation was $120,000, and CCA was $90,000.
c. The company recorded an expense of $125,000 for the one-year warranty on the company’s products; cash disbursements amounted to $77,000.
d. The company incurred development costs of $75,000 that met the criteria for capitalization for accounting purposes. Development work was still ongoing at year-end. These costs could be immediately deducted for tax purposes.
e. The company made a political contribution of $20,000 and expensed this for accounting purposes.
f. The income tax rate was 28% and the year 2 tax rate was enacted, at 30%. In the second year, the company reported the following:
a. Earnings before income tax were $1,600,000.
b. Depreciation was $120,000; CCA was $260,000.
c. The estimated warranty costs were $200,000, while the cash expenditure was $205,000.
d. Additional development costs of $150,000 were incurred to complete the project. For
accounting purposes, amortization of $38,000 was recorded.
e. Golf club memberships for top executives cost $25,000; this was expensed for accounting
purposes as a marketing expense.
Required:
Prepare the journal entries to record income tax expense for the first and second years of operation, assuming the company is a private company that uses the taxes payable method. Show all supporting calculations.
Step by Step Answer:
Intermediate Accounting Volume 2
ISBN: 9781260881240
8th Edition
Authors: Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel