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Book/movie review
22/08/2022
E19-17B (Two Temporary Differences, Tracked through 3 Years, Multiple Rates)Taxable income and pretax financial income would be identical for Ursula Co. except for its depreciation on equipment purchased in 2014 for $500,000 and estimated costs of warranties. The following income computations have been prepared.
Taxable income 2014 2015 2016
Excess of revenues over expenses
(excluding two temporary differences) $ 265,000 $ 630,000 $ 250,000
Tax Depreciation (125,000) (200,000) (175,000)
Expenditures for warranties (10,000) (50,000) (15,000)
Taxable income $ 130,000 $ 380,000 $ 60,000
Pretax financial income 2014 2015 2016
Excess of revenues over expenses
(excluding two temporary differences) $ 265,000 $ 630,000 $ 250,000
Book depreciation (100,000) (100,000) (100,000)
Estimated cost of warranties (75,000) –0– –0–
Income before taxes $ 90,000 $ 530,000 $ 150,000
The tax rates in effect are: 2014 and 2015, 30%; 2016 and thereafter, 40%. All tax rates were enacted into law on January 1, 2014. No deferred income taxes existed at the beginning of 2014. Taxable income is expected in all future years.
Instructions
Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2014, 2015, and 2016.
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