Acc 557 Homework Week 2 Chapter 19 Problem 1

ACC 557 Homework Week 2 Chapter 19 Problem 1

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ACC 557 Homework  Week 2 – Chapter 19 Problem 1

Problem 1:

California Surplus Inc. qualifies to use the installment-sales method for tax purposes and sold an investment on an installment basis. The total gain of $75000 was reported for financial reporting purposes in the period of sale. The installment period is 3 years; one-third of the sale price is collected in 2014 and the rest in 2015 and 2016. The tax rate was 35% in 2014, 30% in 2015, and 30% in 2016. The enacted tax rates of 2015 and 2016 are not known until 2015.  The accounting and tax data are shown below. |   |

  |   |   |   |   |

  |   | Financial Accounting | Tax Return |   |

2014 (35% tax rate) |   |   |   |   |

Income before temporary difference |   |  $                 175,000 |  $             175,000 |   |

Temporary difference |   |  $                   75,000 |  $               25,000 |   |

Income |   |  $                 250,000 |  $             200,000 |   |

  |   |   |   |   |

2015 (30% tax rate) |   |   |   |   |

Income before temporary difference |   |  $                 200,000 |  $             200,000 |   |

Temporary difference |   |  $                          – |  $               25,000 |   |

Income |   |  $                 200,000 |  $             225,000 |   |

  |   |   |   |   |

2016 (30% tax rate) |   |   |   |   |

Income before temporary difference |   |  $                 180,000 |  $             180,000 |   |

Temporary difference |   |  $                          – |  $               25,000 |   |

Income |   |  $                 180,000 |  $             205,000 |   |

  |   |   |   |   |

Required: |   |   |   |   |

  |   |   |   |   |

  | 1) | Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable for 2014, 2015, and 2016. No deferred income...