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MGAB01H3 Lecture : Corporation Income Statements

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ochretortoise616
10 Nov 2010
School
UTSC
Department
Financial Accounting
Course
MGAB01H3
Professor
Liang Chen

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MGAB01H3 Full Course Notes
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MGAB01H3 Full Course Notes
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Document Summary

Income statements for corporations are the same as the statements for proprietorships or partnerships except for one thing: the reporting of income tax. For tax purposes, corporations are considered to be a separate legal entity. As a result, income tax expense is reported in a separate section of the corporation income statement, which is located before net income. There are two separate accounts added: income before income tax and income tax expense. Income tax is calculated annually, but estimated and remitted monthly. Usually, the estimated and accrued amount of income tax is different from the actual amount. When the definitive amount is given, an adjusting entry with the income tax expense and income tax payable accounts are adjusted. Interperiod tax allocation the difference in accounting objectives for revenues and expenses for gaap and ccra purposes causes timing differences to occur. These timing differences result in future income taxes.

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Related Questions

A. If a $150,000 balance in Deferred Tax Liability was computedby use of a 30% rate, the underlying cumulative temporarydifference amounts to $__________.

B. An income statement that reports current tax benefit of$63,000, and deferred tax expense of $19,000 will report totalincome tax _____________ of$________.

C. If a taxable permanent difference originates in 2012, it willcause taxable income for 2012 tobe _________(less than, greater than) pretax financial income for2012.

D. If the income statement shows total income tax expenses of$186,000 and deferred tax expenses of $45,000, the total taxes dueon the tax return for the period are______________.

E. If total tax expense is $225,000 andthe current expense is $155,000, then the deferred tax_____________ (expense, benefit) is $__________.

F. In a period in which a deductible temporary differencereverses, the reversal will cause taxable income to be __________(less than, greater than) pretax financialincome.

G. A decrease in the Deferred Tax Assets account onthe balance sheet is recorded by a _________ (debit,credit) to the Income Tax Expenseaccount.

H. If a corporation’s “Income tax payable” on the balance sheettotals $100,000, the company made estimated payments during theyear totaling $40,000, and the tax rate is 40%, taxable incomeequals $________.

I. A valuation account___________ (reduces, increases) the balance reported in thebalance sheet for a deferred tax asset to the amount expected to berealized.

J. Deferred taxes _________ (are,are not) recorded to account for temporary differences.

The Anshul Corporation used an inventory method for its taxreturn that was different from the one it used when it prepared theincome statement it distributed to its owners. Some of thedifferences between its tax return and the income statement itdistributed to owners are shown below.

Tax Return

Owners' Income Statement

Sales

$700,000

$700,000

Cost of goods sold

$330,000

$300,000

Operating expenses

$370,000

$400,000

Income taxes expense

$129,500

$140,000

Net income

$240,500

$260,000

Determine how much more or less cash the company has availableby using a different inventory method for tax purposes than it usedwhen it prepared the income statement distributed to itsowners.

a.

$19,500 less
b.

$19,500 more
c.

$10,500 less
d.

$10,500 more

Zekany Corporation would have had identical income before taxeson both its income tax returns and income statements for the years2013 through 2016 except for differences in depreciation on anoperational asset. The asset cost $190,000 and is depreciated forincome tax purposes in the following amounts:

2013 $ 62,700 2014 83,600 201528,500 2016 15,200

The operational asset has afour-year life and no residual value. The straight-line method isused for financial reporting purposes. Income amounts beforedepreciation expense and income taxes for each of the four yearswere as follows. 2013 2014 2015 2016 Accounting income before taxesand depreciation $ 105,000 $ 125,000 $ 115,000 $ 115,000 Assume theaverage and marginal income tax rate for 2013 and 2014 was 30%;however, during 2014 tax legislation was passed to raise the taxrate to 40% beginning in 2015. The 40% rate remained in effectthrough the years 2015 and 2016. Both the accounting and income taxperiods end December 31. Required: Prepare the journal entries torecord income taxes for the years 2013 through 2016. (If no entryis required for a particular transaction, select "No journal entryrequired" in the first account field.)