Dart, Inc. began business on January 1, 2014. Its pretax financial income for the first 2 years
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Question:
Dart, Inc. began business on January 1, 2014. Its pretax financial income for the first 2 years was as follows:
2014 $240,000
2015 $560,000
The following items caused the only differences between pretax financial income and taxable income.
- In 2014, the company collected $240,000 of rent; of this amount, $80,000 was earned in 2014; the other $160,000 will be earned equally over the next two years. The full $240,000 was included in taxable income in 2014.
- Depreciation of property, plant, and equipment for financial reporting purposes amounts to $30,000. Depreciation of these assets amounts to $50,000 for the tax return. The temporary difference due to excess tax depreciation will reverse equally over the next two years.
- The company pays $10,000 a year for life insurance on officers.
- In 2015, the company terminated a top executive and agreed to $90,000 of severance pay. The amount will be paid $30,000 per year for 2015–2017. The 2015 payment was made. The $90,000 was expensed in 2015. For tax purposes, the severance pay is deductible as it is paid.
The enacted tax rates existing at December 31, 2014 are:
2014 30% 2016 40%
2015 35% 2017 40%
Required:
- Determine taxable income for 2014 and 2015.
- Determine the deferred income taxes at the end of 2014, and prepare the journal entry to record income taxes for 2014.
- Prepare the journal entry to record income taxes for 2015.
Related Book For
Intermediate Accounting
ISBN: 978-1118300855
10th Canadian Edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy
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