Possible Journal Entries: ABC's tax accounting methods and GAAP accounting methods are the same. ABC reported pretax

 

Possible Journal Entries:

  
 

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ABC's tax accounting methods and GAAP accounting methods are the same. ABC reported pretax income of $120,000 for the year ended December 31, 2020. Embedded in the pretax income is $50,000 of interest revenue on a bond. There is some uncertainty as to whether the interest on the bond is subject to federal income taxation. ABC believes that there is an argument that the interest revenue can be deemed to have been paid by a state or local government and hence is not subject to federal income taxation (i.e.. the interest is tax-exempt). After consulting with legal counsel, ABC has decided to take the position that the interest revenue has been paid by a state or local government and, accordingly, prepared its corporate tax return excluding the $50,000 of interest revenue. There are no other permanent differences other than the $50,000 of tax-exempt' interest revenue. The corporate tax rate is 21%. Required 1. Prepare all tax-related adjusting entries required at December 31, 2020 assuming that ABC asserts that it is NOT "more likely than not" that the company will be able to sustain the tax position on its technical merits in the event of an IRS audit. Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. Account Debit Credit Enter your answer to the following question in the green box What amount of net income will be reported on the 2020 income statement? 3 1 1 1 ▬▬D JENSE 1 1 1 ABC's tax accounting methods and GAAP accounting methods are the same. ABC reported pretax income of $120,000 for the year ended December 31, 2020. Embedded in the pretax income is $50,000 of interest revenue on a bond. There is some uncertainty as to whether the interest on the bond is subject to federal income taxation. ABC believes that there is an argument that the interest revenue can be deemed to have been paid by a state or local government and hence is not subject to federal income taxation (i.e.. the interest is tax-exempt). After consulting with legal counsel, ABC has decided to take the position that the interest revenue has been paid by a state or local government and, accordingly, prepared its corporate tax return excluding the $50,000 of interest revenue. There are no other permanent differences other than the $50,000 of tax-exempt' interest revenue. The corporate tax rate is 21%. Required 1. Prepare all tax-related adjusting entries required at December 31, 2020 assuming that ABC asserts that it is NOT "more likely than not" that the company will be able to sustain the tax position on its technical merits in the event of an IRS audit. Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. Account Debit Credit Enter your answer to the following question in the green box What amount of net income will be reported on the 2020 income statement? 3 1 1 1 ▬▬D JENSE 1 1 1

Answer rating: 100% (QA)

Problem 6 Reported Income of 1201000 On 31122020 Embedded Pretax 50... View the full answer