The Following Data Represent the Differences Between Accounting and Tax

question 75

Essay

The following data represent the differences between accounting and tax income for Seafood Imports Inc.,whose pre-tax accounting income is $650,000 for the year ended December 31.The company's income tax rate is 45%.Additional information relevant to income taxes includes the following.
a.Capital cost allowance of $270,000 exceeded accounting depreciation expense of $160,000 in the current year.
b.Rents of $25,000,applicable to next year,had been collected in December and deferred for financial statement purposes but are taxable in the year received.
c.In a previous year,the company established a provision for product warranty expense.A summary of the current year's transactions appears below:
$\begin{array}{lll}\text { i. Provision for warranties, January } 1 \text { balance } & \text { ii. } 101,000 \\\text { ii. Provision for the year } & \text { iv. } 42,500 \\\text { iii. Payments made to fulfill product warranties } & \text { vi. } (33,000) \\\text { iv. Provision for warranties, December } 31 \text { balance } & \text { viii. } 110,500\end{array}$ For tax purposes,only actual amounts paid for warranties are deductible.
d.Insurance expense to cover the company's executive officers was $6,800 for the year,and you have determined that this expense is not deductible for tax purposes.
Requirement:
Prepare the journal entries to record income taxes for Seafood Imports.

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Definitions:

Liabilities

Financial obligations or debts that a company owes to others, which must be settled over time through the transfer of economic benefits.

Debts

Obligations or amounts of money that are owed by a person, company, or country to creditors.

Accounts Payable

A liability account that represents amounts a company owes to suppliers or creditors for goods and services received but not yet paid for.

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting its liabilities, representing the ownership stake of the shareholders.