Refer
to the information in E18-3 for Melissa Inc. Assume that the company follows the
taxes payable method of accounting for income taxes under private enterprise
GAAP. During the year, Melissa Inc. made tax instalment payments of $42,000.
In
E Melissa Inc. reports accounting income of $105,000 for 2011. The following
items cause taxable income to be different than income reported on the
financial statements.
1.
Capital cost allowance (on the tax return) is greater than depreciation on the
income statement by $16,000.
2.
Rent reported on the tax return is $24,000 higher than rent earned on the
income statement.
3.
Non-deductible fines for pollution appear as an expense of $15,000 on the
income statement.
4.
Melissa’s tax rate is 30% for all years and the company expects to report
taxable income in all future years. There are no future taxes at the beginning
of 2011. Melissa reports under the PE GAAP future income taxes method.
Instructions
(a)
Calculate the taxable income and tax expense for the year ended December 31,
2011.
(b)
Prepare the journal entry(ies) to record income taxes at December 31, 2011.
(c)
Prepare the income statement for 2011, beginning with the line “Income before
income taxes.”
(d)
Provide the balance sheet presentation for any resulting income tax balance
sheet accounts at December 31, 2011.
(a)
Accounting income $105,000
Permanent differences:
Non-deductible
fines 15,000
120,000
Reversing differences:
Excess
of CCA over depreciation
(16,000 )
Excess
rent collected over rent earned 24,000
Taxable income $128,000
Current income taxes – 30%
$38,400
(b) Current
Income Tax Expense............................................. 38,400
Income
Tax Payable...................................................
38,400
(c) Income
before income taxes $105,000
Income
tax expense
38,400
Net
income $66,600
(d) Current
assets
Income
taxes recoverable $3,600
($42,000
– $38,400)
