2023 was the first year of operations for Franklin Corporation. In 2023, Franklin reported pretax accounting...

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2023 was the first year of operations for Franklin Corporation. In 2023, Franklin reported pretax accounting income of $1,000,000, which included the following amounts: 1. Life insurance expense of $50,000 related to key executives reported on the 2023 income statement. However, this expense is not deductible for tax purposes. 2. A piece of equipment with a four-year useful life was acquired at the beginning of 2023. It is depreciated by the straight-line method for accounting purposes. However, MACRS is used on the tax return. The depreciation reported on the income statement and the tax return for the four-year period is shown below: Year 2023 2024 2025 2026 Depreciation Income Statement $ 300,000 300,000 300,000 300,000 $1,200,000 Year 2023 2024 2025 Tax Return $396,000 528,000 180,000 96,000 $1,200,000 3. Insurance expense of $36,000, representing one-half of a $72,000, two-year casualty and liability insurance policy that is deducted for tax purposes in its entirety in 2023. 4. Estimated warranty expense of $12,000 will be deductible on the tax return when actually paid during the next two years. Estimated deductions are as follows: Income Statement $12,000 -0- -0- $12.000 Warranty 2024 30% 2025 25% 2026 25% Difference $(96,000) (228,000) 120,000 204,000 Tax Return $ -0- Ś 8,000 4,000 $12.000 Difference $12,000 (8,000) (4,000) -0- 5. In 2023, In 2023, property was sold on an installment basis for $60,000. Franklin recognizes installment income for financial reporting purposes in the year of sale. For tax purposes, installment income is reported by the installment method when the cash is received. The scheduled collections are $10,000 in 2024, $30,000 in 2025, and $20,000 in 2026. The enacted tax rate for 2023 was 30%. The enacted tax rates for 2024 2026 are as follows: INSTRUCTIONS: 1. Which of the differences described in 1-5 above are temporary, and which are permanent? Explain your answer. 2. For each temporary difference, indicate whether it will generate a future taxable amount, i.e., DTL, or a future deductible amount, i.e., DTA. 3. Prepare a schedule that reconciles the difference between pretax accounting income and taxable income for 2023. 4. Prepare the appropriate journal entry for 2023 to record income taxes. 5. Show how the 2023 deferred tax amounts should be classified and reported on the 2023 balance sheet. 2023 was the first year of operations for Franklin Corporation. In 2023, Franklin reported pretax accounting income of $1,000,000, which included the following amounts: 1. Life insurance expense of $50,000 related to key executives reported on the 2023 income statement. However, this expense is not deductible for tax purposes. 2. A piece of equipment with a four-year useful life was acquired at the beginning of 2023. It is depreciated by the straight-line method for accounting purposes. However, MACRS is used on the tax return. The depreciation reported on the income statement and the tax return for the four-year period is shown below: Year 2023 2024 2025 2026 Depreciation Income Statement $ 300,000 300,000 300,000 300,000 $1,200,000 Year 2023 2024 2025 Tax Return $396,000 528,000 180,000 96,000 $1,200,000 3. Insurance expense of $36,000, representing one-half of a $72,000, two-year casualty and liability insurance policy that is deducted for tax purposes in its entirety in 2023. 4. Estimated warranty expense of $12,000 will be deductible on the tax return when actually paid during the next two years. Estimated deductions are as follows: Income Statement $12,000 -0- -0- $12.000 Warranty 2024 30% 2025 25% 2026 25% Difference $(96,000) (228,000) 120,000 204,000 Tax Return $ -0- Ś 8,000 4,000 $12.000 Difference $12,000 (8,000) (4,000) -0- 5. In 2023, In 2023, property was sold on an installment basis for $60,000. Franklin recognizes installment income for financial reporting purposes in the year of sale. For tax purposes, installment income is reported by the installment method when the cash is received. The scheduled collections are $10,000 in 2024, $30,000 in 2025, and $20,000 in 2026. The enacted tax rate for 2023 was 30%. The enacted tax rates for 2024 2026 are as follows: INSTRUCTIONS: 1. Which of the differences described in 1-5 above are temporary, and which are permanent? Explain your answer. 2. For each temporary difference, indicate whether it will generate a future taxable amount, i.e., DTL, or a future deductible amount, i.e., DTA. 3. Prepare a schedule that reconciles the difference between pretax accounting income and taxable income for 2023. 4. Prepare the appropriate journal entry for 2023 to record income taxes. 5. Show how the 2023 deferred tax amounts should be classified and reported on the 2023 balance sheet.

Answer rating: 100% (QA)

Lets analyze the temporary and permanent differences described in 15 1 Life insurance expense for key executives Permanent difference This expense is ... View the full answer