Nevada Corp., at the end of 2014, its first year of operations, prepared a recon
ID: 2462373 • Letter: N
Question
Nevada Corp., at the end of 2014, its first year of operations, prepared a reconciliation between pre-tax accounting income and taxable income as follows:
Pre-tax accounting income = $300,000
Estimated warranty expenses deductible when paid = $800,000
Excess CCA: ($600,000)
Taxable Income: $500,000
Estimated warranty expenses of $530,000 will be deductible in 2015, $200,000 in 2016, and $70,000 in 2017. The use of depreciable assets will result in taxable amounts of $200,000 in each of the next three years. The enacted tax rate is 30% and is not expected to change.
a) Assuming that pre-tax income stays at $300,000 for 2015, 2016, 2017, using the information above to calculate the difference, calculate taxable income for each year and income tax payable.
b) Prepare the required adjusting journal entries to record income taxes and any deferred tax liability/asset for 2014.
Explanation / Answer
a)
b)
Future taxable (Deductible Amount) 2015 2016 2017 Total Warrenties -5,30,000 -2,00,000 -70,000 -8,00,000 Excess CCA 2,00,000 2,00,000 2,00,000 6,00,000