The Following Data Represent the Differences Between Accounting and Tax

question 53

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:
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:

Statement of Changes

The Statement of Changes outlines the alterations in equity for a specified period, showing how net income and other changes directly affect a company's financial position.

Net Assets

The difference between total assets and total liabilities, representing the owners' or shareholders' equity in a company.

CFA Institute

A global association of investment professionals that offers education, certification, and ethical and professional standards.

Operating Capability

The ability of a company to maintain the necessary level of operation to meet its business objectives, often measured by comparing current performance to historical standards.