Over a recent three-year period, Travis Country Enter- prises (TCE) had the following pretax accounting income and
Question:
For each year, the difference between TCEs pretax accounting income and its taxable income was due to its use of different depreciation methods for ï¬nancial accounting and taxation purposes. Recently, a local attorney, who is a new member of TCEs board of directors, reviewed the companys ï¬nancial records. At the next board meeting, this individual suggested that the use of different accounting methods for ï¬nancial accounting and taxation purposes was, in her opinion, unethical.
Required:
(a) Is it unethical to use different accounting methods for ï¬nancial accounting and taxation purposes? Why or why not?
(b) TCEs effective tax rate in recent years has been 40 percent for both ï¬nancial accounting and taxation purposes. Compute the companys income tax expense and income taxes payable for Years 13. Some of the temporary differences from years 1 and 2 reversed in year 3.
(c) Prepare an appropriate journal entry to record TCEs income tax expense for Years 13.
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