A&O Corporation has pretax financial income of $500,000 for 2014. The following items cause taxable income to
Question:
A&O Corporation has pretax financial income of $500,000 for 2014. The following items cause taxable income to be different than pretax financial income:
• Depreciation on the tax return is greater than depreciation on the income statement by $100,000.
• Magazine subscriptions received in advance were $35,000 and will be reported in financial income in the future.
• Warranty expenses reported per the income statement were higher than the tax return by $10,000.
• Fines for pollution appear as an expense of $25,000 on the income statement.
The tax rate for A&O is 35% for all years, and the company expects to report taxable income for all years in the future. There are no deferred taxes at the beginning of 2014. Show supporting computation for the following:
a. Show computations to determine taxable income for 2014.
b. Show computations for income taxes payable for 2014.
c. Show computations for deferred tax liability, deferred tax asset, and income tax expense for 2014.
d. Prepare the journal entry to record the income tax expense, deferred tax asset, deferred tax liability, and income tax payable for 2014.
Intermediate Accounting
ISBN: 978-0470616314
IFRS edition volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield