Interperiod Tax Allocation Quick Company reports the following revenues and expenses in its pretax financial income for the year ended December 31, 2013: Revenues 229,600 Expenses (160,100) Pretax financial income 69,500 The revenues included in pretax financial income are the same amount as the revenues included in the company’s taxable income. A reconciliation of the expenses reported for pretax financial income to the expenses reported for taxable income, however, reveals four differences: 1. Depreciation deducted for financial reporting exceeded depreciation deducted for income taxes by $11,000. 2. Percentage depletion deducted for income taxes exceeded cost depletion deducted for financial reporting by 15600. 3. Warranty costs deducted for income taxes exceeded warranty expenses deducted for financial reporting by 8900. 4. Legal expense of $9,800 was deducted for financial reporting; it will be deducted for income taxes when paid in a future year. Quick expects its percentage depletion to exceed its cost depletion in each of the next 5 years by the same amount as in 2013. At the end of 2013, the other three expenses are expected to result in total future taxable or deductible amounts as follows: Totals Future taxable amounts Depreciation expense difference 63,000 Future deductible amounts Warranty expense difference 48,400 Legal expense difference 9,800 At the beginning of 2013, Quick had a deferred tax liability of $22,200 related to the depreciation difference and a deferred tax asset of $17,190 related to the warranty difference. The income tax rate for 2013 is 35%, but in 2012 Congress enacted a 30% rate for 2014 and future years. Required: 1. Compute Quick’s taxable income for 2013. 2. Prepare Quick’s income tax journal entry for 2013. Assume no valuation allowance is necessary. 3. Prepare a condensed 2013 income statement for Quick.
Interperiod Tax Allocation Quick Company reports the following revenues and expenses in its pretax financial income for the year ended December 31, 2013:
Revenues 229,600
Expenses (160,100)
Pretax financial income 69,500
The revenues included in pretax financial income are the same amount as the revenues included in the company’s taxable income. A reconciliation of the expenses reported for pretax financial income to the expenses reported for taxable income, however, reveals four differences:
1. Depreciation deducted for financial reporting exceeded depreciation deducted for income taxes by $11,000.
2. Percentage depletion deducted for income taxes exceeded cost depletion deducted for financial reporting by 15600.
3. Warranty costs deducted for income taxes exceeded warranty expenses deducted for financial reporting by 8900.
4. Legal expense of $9,800 was deducted for financial reporting; it will be deducted for income taxes when paid in a future year.
Quick expects its percentage depletion to exceed its cost depletion in each of the next 5 years by the same amount as in 2013. At the end of 2013, the other three expenses are expected to result in total future taxable or deductible amounts as follows:
Totals
Future taxable amounts
Depreciation expense difference 63,000
Future deductible amounts
Warranty expense difference 48,400
Legal expense difference 9,800
At the beginning of 2013, Quick had a
Required:
1. Compute Quick’s taxable income for 2013.
2. Prepare Quick’s income tax
3. Prepare a condensed 2013 income statement for Quick.
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