Question

During 2020, Kate Holmes Co.'s first year of operations, the company reports pretax financial income at $250,000. Holmes's enacted tax rate is 45% for 2020 and 20% for all later years. Holmes expects to have taxable income in each of the next 5 years.The effects on future tax returns of temporary differences existing at December 31, 2020, are summarized:Future Years 2021 2022 2023 2024 Future taxable- (deductible)amounts:Installment Sales 32,000 ### 32,000 Depreciation 6,000 ### 6,000 6,000 Unearned Rent (50,000) ###Compute Taxable Income for 2020.

Answer 1

Answer:

Compute Taxable Income for 2020 224,000

Explanation:

the schedule below to compute deferred taxes at December 31, 2020 2020 2021 2022

Income Before Tax 250,000. (Financial Income) Differences Installment Sales deffered tax liability (96,000) 32,000 32,000 Depreciation deferred tax liability(30,000) 6,000 6,000 Unearned Rent deferred tax asset 100,000 (50,000) (50,000)Taxable Income Total of above224,000 Tax Rate 45% 40% 40%Income Tax Payable (Tax Income X Tax Rate)100,800 Deferred Tax Asset (unearned rent X Tax Rate) (20,000) (20,000) Deferred Tax Liability installment sales + Depreciation * tax rate 15,200 15,200