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    Pretax Financial Income and Taxable Income Reconciliation

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    Tax/Accounting of Accent Corporation

    The Accent Corporation shows the following information. On January 1, 2012, Accent purchased a donut machine for $900,000.
    A) Pretax financial income is $3,2000,000 in 2012 and $3,500,000 in 2013.
    B) Taxable income is expected in future years with an expected tax rate of 40%.
    C) The company recognized an extraordinary gain of $200,000 in 2013 (which is fully taxable).
    D) Tax-exempt municipal bonds yielded interest of $240,000 in 2013.
    E) Straight-line basis for 6 years for financial reporting.
    F) Half-year convention basis depreciation for 4 years for tax purposes.

    1) Compute taxable income and income taxes payable for 2013.
    2) Prepare the journal entries for income tax expense, income taxes payable, and deferred taxes for 2013.
    3) Prepare the deferred income taxes presentation for December 31, 2013 balance sheet.

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    Solution Summary

    This posting shows how to reconcile pretax financial income and taxable income and addresses the different accounting treatment between temporary difference and permanent difference. It also shows how to calculate deferred tax liability (asset) and how to report it on the balance sheet. Attached as Excel.