Answer:
a) Taxable Income = $65,200
Income Taxes Payable = $19,560
b) Debit Income tax Expense $19,560 Credit Income Tax payable $19,560
Debit Income Tax Expense $11,610 Credit Deferred Tax $11,610
Debit Profit and loss Account $31,170 Credit Income Tax Expense $31,170
Explanation:
PreTax Income $66,100
1 . Depreciation -$14,800
2 . Rent +$23,900
3 . Fines -$10,000
Taxable Income $65,200
Income Tax Payable (30%) $19,560
Taxable income is in few words net income computed by The Taxman using tax laws and methods. in some cases the Accountant and Taxman can disagree on some things therefore creating temporal and permanent difference. Hence we adjust the Pretax income to arrive at Taxable income.
Income Tax Expense = Income Tax Payable + Deferred tax
Deferred tax arises from temporal difference (Carrying amount - Tax Base)
Deferred Tax = (14,800 * 30%) + ($23,900*30%)
= $4,440 + $7,170
= $11,610
Fines are permanent difference therefore no differed tax arises from them.
