a) Record the income tax journal entry on December 31, 2020.

b) Record the income tax journal entry on December 31, 2021

c) Show how the tax accounts (excluding income taxes payable) would be reported on the income statement and balance sheet for 2020 and 2021. Include the disclosure of current and deferred tax expense.

d) Compute the effective tax rate for 2020.

Transcribed Image Text:

The income statement for Prince Inc. for two years (summarized) follow. GAAP Tax Service revenue Sales revenue Environmental fines Warranty expense Other expenses Pretax GAAP income Taxable income 2020 2020 2021 $6,000 $6,000 114,000 108,000 $0 108,000 (6,000) (6,000) (4,800) 0 $0 114,000 0 (4,800) (80,400) (102,600) (80,400) (102,600) $16,800 $11,400 2021 0 0 $33,600 $6,600 Additional information Environment fines are not deductible for income tax purposes. • The amount collected in 2020 related to deferred service revenue ($6,000) was taxable in 2020. • Accrued warranty costs of $4,800 are not deductible for income tax purposes until 2021 when the expenditures are made. Income tax rate is 25% for both years. . At the beginning of 2020, deferred tax asset and liability balances were zero. The income statement for Prince Inc. for two years (summarized) follow. GAAP Tax Service revenue Sales revenue Environmental fines Warranty expense Other expenses Pretax GAAP income Taxable income 2020 2020 2021 $6,000 $6,000 114,000 108,000 $0 108,000 (6,000) (6,000) (4,800) 0 $0 114,000 0 (4,800) (80,400) (102,600) (80,400) (102,600) $16,800 $11,400 2021 0 0 $33,600 $6,600 Additional information Environment fines are not deductible for income tax purposes. • The amount collected in 2020 related to deferred service revenue ($6,000) was taxable in 2020. • Accrued warranty costs of $4,800 are not deductible for income tax purposes until 2021 when the expenditures are made. Income tax rate is 25% for both years. . At the beginning of 2020, deferred tax asset and liability balances were zero.

Answer rating: 100% (QA)

a Record the income tax journal entry on December 31 2020 Deferred tax asset Credit 33600 Incom... View the full answer