E19-4B (Three Differences, Compute Taxable Income, Entry for Taxes) Metals Corporation reports pretax financial income of $260,000 for 2007. The following items cause taxable income to be different than pretax financial income.;1 Rental income on the income statement is less than rent collected on the tax return by $65,000.;2 Depreciation on the tax return is greater than depreciation on the income statement by $40,000.;3 Interest on an investment in a municipal bond of $6,500 on the income statement.;Metal?s tax rate is 40% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2007.;Instructions;(a) Compute taxable income and income taxes payable for 2007.;(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2007.;(c) Prepare the income tax expense section of the income statement for 2007, beginning with the line ?Income before income taxes.?;(d) Compute the effective income tax rate for 2007.
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