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    Depreciation Difference, Two Differences, Single Rate, etc.

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    (Second Year of Depreciation Difference, Two Differences, Single Rate, Extraordinary Item)

    The following information has been obtained for the Gocker Corporation.

    Prior to 2010, taxable income and pretax financial income were identical.
    Pretax financial income is $1,700,000 in 2010 and $1,400,000 in 2011.
    On January 1, 2010, equipment costing $1,200,000 is purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes.

    Interest of $60,000 was earned on tax-exempt municipal obligations in 2011.
    Included in 2011 pretax financial income is an extraordinary gain of $200,000, which is fully taxable.
    The tax rate is 35% for all periods.
    Taxable income is expected in all future years.

    Compute taxable income and income tax payable for 2011.

    Taxable income $1,250,000
    Income tax payable $437,500

    Prepare the journal entry to record 2011 income tax expense, income tax payable, and deferred taxes. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

    Description/Account Debit Cr

    Prepare the bottom portion of Gocker's 2011 income statement, beginning with "Income before income taxes and extraordinary item."

    $

    Current $

    Income before extraordinary item

    Less:

    $

    Indicate how deferred income taxes should be presented on the December 31, 2011, balance sheet.

    $

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    Solution Preview

    Compute taxable income and income tax payable for 2011.

    Taxable income $1,250,000 <-- correct. 1400000 - 60000 - 90000 = 1250000
    Income tax payable $437,500 <-- correct. x 35% = 437500

    Prepare the journal entry to record 2011 income tax expense, income tax payable, and deferred taxes. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

    This requires you to calculate carrying cost.
    1,200,000 / 8 = 150,000; 1,200,000 /5 x .5 = 120,000; 150,000 - 120,000 = 30,000 for year 1. 150,000 - 240,000 = (90,000) for years 2 through 5. ...

    Solution Summary

    (Second Year of Depreciation Difference, Two Differences, Single Rate, Extraordinary Item)

    The following information has been obtained for the Gocker Corporation.

    Prior to 2010, taxable income and pretax financial income were identical.
    Pretax financial income is $1,700,000 in 2010 and $1,400,000 in 2011.
    On January 1, 2010, equipment costing $1,200,000 is purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes.

    Interest of $60,000 was earned on tax-exempt municipal obligations in 2011.
    Included in 2011 pretax financial income is an extraordinary gain of $200,000, which is fully taxable.
    The tax rate is 35% for all periods.
    Taxable income is expected in all future years.

    Compute taxable income and income tax payable for 2011.

    Taxable income $1,250,000
    Income tax payable $437,500

    Prepare the journal entry to record 2011 income tax expense, income tax payable, and deferred taxes. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

    Description/Account Debit Cr

    Prepare the bottom portion of Gocker's 2011 income statement, beginning with "Income before income taxes and extraordinary item."

    $

    Current $

    Income before extraordinary item

    Less:

    $

    Indicate how deferred income taxes should be presented on the December 31, 2011, balance sheet.

    $2.19

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