I have tried to answer this but I think I might be wrong, thanks for your help p
ID: 2562752 • Letter: I
Question
I have tried to answer this but I think I might be wrong, thanks for your help please see below:
Southern Atlantic Distributors began operations in January 2018 and purchased a delivery truck for $100,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 40% of cost in 2018, 30% in 2019, and 30% in 2020. Pretax accounting income for 2018 was $480,000, which includes interest revenue of $65,000 from municipal bonds. The enacted tax rate is 40%.
Southern Atlantic Distributors began operations in January 2018 and purchased a delivery truck for $100,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 40% of cost in 2018, 30% in 2019, and 30% in 2020 Pretax accounting income for 2018 was $480,000, which includes interest revenue of $65,000 from municipal bonds. The enacted tax rate is 40% Assuming no differences between accounting income and taxable income other than those described above Required: 1. Complete the following table given below and prepare the journal entry to record income taxes in 2018. 2. What is Southern Atlantic's 2018 net income? Complete this question by entering your answers in the tabs below Required 1 Calculation Reqired 1 GJ Required 2 Complete the following table given below to record income taxes in 2018. (Enter your answers in thousands. Amounts to be deducted should be indicated with a minus sign.) Tax Rate % Recorded as: Pretax accounting income Permanent difference Income subject to taxation Temporary difference Income taxable in current year S 480 65,000 65.480 x 25,000)x $ 40,480 x 40% 40%= 40%- | | $26,192 (10,000) Deferred tax liability S 16,192 Income tax payable Prev 12 of 12 NextExplanation / Answer
1. Cost of delivery truck = 100,000
Useful life = 4 years
Salvege value = 0
Depreciation under straight line method = (cost - salvage value) / useful life
= (100,000 - 0) / 4 = 25,000
Depreciation as per books = 25,000
Depreciation for tax purposes = 100,000*40% = 40,000
Book depreciation is less than tax depreciation by 15,000(40,000-25,000) which is a temporary difference
Pretax accounting income = 480,000
Interest revenue from municipal bonds(permanent difference) = 65,000
2. Southern Atlantic's 2018 Net income =
Pretax accounting income - Income tax expense(current) - Income tax expense(deferred)
= 480,000 - 160,000 - 6,000 = 314,000.
Tax rate% Tax$ Recorded as Pretax accounting income 480,000 Permanent difference (65,000) Income subject to taxation 415,000 Tempoaray difference (15,000) 40% 6,000 Deferred tax liability Income taxable in current year 400,000 40% 160,000 Income tax payable