Path: p Words:11 QUESTION 2 10 points Saved Gallo Light began operations in 2018

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Path: p Words:11 QUESTION 2 10 points Saved Gallo Light began operations in 2018. The company sometimes sells used warehouses on an installment basis. In those cases, Gallo Light reports income in its income statement in t year of the sale. In its income tax return, though, Gallo Light reports installment income by the installment method. Installment income in 2018 was S90,000, which Gallo Light expects collect equally over the next three years. The tax rate is 30%, but based on an enacted law, is scheduled to become 35% in 2020. Gallo Light's pretax accounting income from the 2018 income statement was $830,000, which includes $40,000 of interest revenue from an investment in municipal bonds. differences between accounting income and taxable income other than those described above. Required: (1.) Prepare the appropriate journal entry to record Gallo Light's 2018 income taxes. Show calculations (2.) What is Gallo Light's 2018 net income?

Explanation / Answer

1.

Journal

2.

Current
Year
2018 Future taxable amounts 2019 2020 2021 Accounting income 830 Permanent difference (40) Temporary difference: Installment sales (90) 30 30 30 Taxable income 700 Enacted tax rate 30% 30% 35% 35% Tax payable currently 210 Deferred tax liability 9 10.5 10.5 30 Less beginning balance 0 Change in balance: credit (debit) 30

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