Laura is a gourmet chef who runs a small catering business in a competitive industry. laura specializes in making wedding cakes.
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Answer:
Explanation:
Income tax expense: The expense account that reveals the amount of pre-determined tax paid on income for a required period of time is known as income tax expense account. The following formula can be used to determine the income tax expense:
Income statement: This is the financial statement of a company which reports all the revenues that are earned and expenses that are to be expended by the company on the immediate accounting year. Income statement is also known profit and loss statement.
Rules for debit and credit:
- When asset increases, debit it and when asset decreases, credit it.
- When liabilities increase, credit it and when liabilities decrease, debit it.
- When stockholders’ equity increases, credit it and when stockholders’ equity decreases, debit it.
- When the expenses and losses increase, debit them and when the expenses and losses decrease, credit it.
- When incomes and gains increase, credit them and when incomes and gains decrease debit them.
Earnings before tax: It is the revenue of a company before adjustment of tax. It consists of all operating expenses. It is the earning retained by the company.
1.) To calculate the taxable income and income tax payable:
Particulars Current year Deferred asset Deferred liability
Financial income $70,000
Excess tax collected $16,000 $16,000
Excess rent collected $22,000 -$22,000
Fines (permanent) $11,000
Taxable income(IRS) $87,000 -$22,000 $16,000
Tax rate 30% 30% 30%
Income tax $26,100 -$6,600 $4,800
Therefore, the taxable income is $87,000, and the income tax is $26,100 for current year.
The taxable income is calculated by adding the income earned, which are eligible for taxation. The financial income is $70,000, the excess tax depreciation is $16,000 (which should be deducted), and the excess rent collected is $22,000. The fines are $11,000. It is taxable as it is permanent. Thus, the taxable income is $87,000. The tax rate is 30 percent. The taxable income should be multiplied with the tax rate. Thus, the taxable income is $26,100. It is income tax payable.
2.) To Prepare a journal entry to record income tax expense, deferred income taxes, and income tax payable for 2014.
Date Account titles and ex[planations Debit Credit
2014 Income tax expense $24,300
Deferred tax asset $6,600
Deferred tax liability $4,800
Income tax payable $26,100
Therefore, income tax expense is debited with $24,300, deferred tax asset is debited with $6,600, deferred tax liability is credited with $4,800, and the income tax payable is credited with $26,100.
It is given that the income tax expense, deferred income taxes, and income taxes payable should be recorded. The income tax expense is $24,300, deferred tax asset is $6,600, deferred liability is $4,800, and the income tax payable is $26,100. The income tax payable is calculated by adding the income tax expense to the deferred tax asset and deducting the obtained value from the liability. Thus, $24,300 is added to $6,600 and deducted by $4,800 and $26,100. Therefore, the income tax expense is debited with $24,300, deferred tax asset is debited with $6,600, deferred tax liability is credited with $4,800, and the income tax payable is credited with $26,100.
3.) To Prepare the income tax expense section of the income statement for 2014.
Income Statement
Particulars Amount Amount
Income before taxes $70,000
Income tax expenses current $26,100
Income tax expenses deferred -$1,800 $24,300
Net income(loss) $45,700
It is given that the income before taxes is $70,000, income tax expense of current year is $26,100, and for the deferred year is $1,800. The net income tax expense is $24,300. The net income is calculated by deducting the income before taxes from the income tax expenses. Thus, $24,300 is deducted from $70,000. Therefore, the net income is $45,700.