Reconstructing information about income taxes. Lilly Company reports the following information about its financial statements and tax return for a year:
Depreciation Expense from Financial Statements ..... $322,800
Financial Statement Pretax Book Income ........... 190,800
Income Tax Expense from Financial Statements ........ 42,000
Income Taxes Payable from Tax Returns .......... 27,600
Together the federal and state government tax taxable income at a rate of 40%. Permanent differences result from municipal bond interest that appears as revenue in the financial statements but is exempt from income taxes. Temporary differences result from the use of accelerated depreciation for tax returns and straight-line depreciation for financial reporting.
Reconstruct the income statement for financial reporting and for tax reporting for the year, identifying temporary differences and permanent differences.