Harms Way Company (HWC) provides you with the following information for the year ended March 31, 2021. Your assignment is to calculate income tax expense, income taxes payable, and deferred income tax assets/liabilities. The end result will be a journal entry to record all of that. In addition, you must calculate HWC’s effective tax rate and prepare a reconciliation to the federal statutory rate of 21%.

1. Income before tax, as shown on HWC’s GAAP statement of income = $2,940,000

2. Depreciation calculated under GAAP = $300,000. Depreciation as will be shown on the tax return = $575,000.

3. Interest income on municipal bonds, which is not subject to federal income tax = $250,000.

4. At the end of the fiscal year (in March 31, 2021), HWC received a payment of $750,000 from a client for a product to be delivered in July 2021. Under the tax law, that payment is taxable when received, not when the product is delivered.

Required: Calculate

1. Income tax expense (GAAP).
2. Income taxes currently payable.
3. Deferred income taxes resulting from this year’s operations.

Be sure to show your work, I give partial credit (full credit, too, of course), but I must be able to see how you calculated amounts used in your answer. The right answer without calculations is the same as a wrong answer without calculations (points = 0)

Answer rating: 100% (QA)

SOLUTION Given Income before taxes as per GAAP Financial Reporting 2940000 Depreciation expense as p... View the full answer