CASE 127 Accounting for Income Taxes: Different Approaches Mark or Make is a bourbon distillery....
50.1K
Verified Solution
Link Copied!
Question
Accounting
CASE 127 Accounting for Income Taxes: Different Approaches
Mark or Make is a bourbon distillery. Sales have been steady for the past three years, and operating costs have remained unchanged. On January 1, 2019, Mark or Make took advantage of a special deal to prepay its rent for three years at a substantial savings. The amount of the prepayment was $60,000. The income statement items (excluding the rent) are shown here.
2019
2020
2021
Gross profit on sales
350,000
349,000
351,000
Operating expense
210,000
210,000
210,000
Assume that the rental is deducted on the corporate tax purposes in 2019 and that there are no other temporary differences between taxable income and pretax accounting income. In addition, there are no permanent differences between taxable income and pretax accounting income. The corporate tax rate for all three years is 30 percent.
Required:
Construct income statements for 2019, 2020, and 2021 under the following approaches to interperiod income tax allocation:
No allocation
Comprehensive allocation
Do you believe that no allocation distorts Mark or Makes net income? Explain.
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
