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Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2007

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E19-20B;Education Sciences Company, in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2007.;Net Book Value on G/L Net Book Value on tax return;Equipment (net) $800,000 $750,000;Estimated warranty liability $150,000 -0?;It is estimated that the warranty liability will be settled in 2008 ($100,000) and 2009 ($50,000). The difference in equipment (net) will result in taxable (deductible) amounts of $(200,000) in 2008, $(150,000) in 2009, and $200,000 in 2010 and 2011. The company has taxable income of $350,000 in 2007. As of the beginning of 2007, the enacted tax rate is 40% for 2007, and 35% for 2008 and thereafter. Education Sciences expects to report taxable income through 2011.;Instructions;? Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2007.;? Indicate how deferred income taxes will be reported on the balance sheet at the end of 2007.;Additional information;Assume the cost of equipment purchased in 2007 was $1,000,000 and for book purposes is depreciated evenly over 5 years. Assume the warranty liability is all current and the PPE is all long term

 

Paper#20508 | Written in 18-Jul-2015

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