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For its first year if operations, Altitude Inc. reports pretax GAAP income of $100,000 in 2020....

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Accounting

For its first year if operations, Altitude Inc. reports pretaxGAAP income of $100,000 in 2020. Assume pretax income in 2021 and2022 of $125,000 and $90,000 respectively. The enacted income taxrate in all years is 25%. The following additional information isavailable for the first three years of operation (with theexception of the one item in the 4th year).

  • Prepaid rent in the amount of $20,000 was recorded on December21, 2020 for 2021 rent.
  • A warranty accrual of 30,000 was recorded on December 31, 2020.The warranty was paid evenly over the years 2021-2023.
  • The company recorded interest revenue of $500 each of the threeyears on municipal bonds.
  1. Compute the income tax payable each year for 2020, 2021,2022
  2. Determined the balance of any deferred tax assets or deferredtax liabilities at the end of each year (2020, 2021, 2022)
  3. Record the journal entry related to taxes in 2020, 2021,20222

Answer & Explanation Solved by verified expert
3.6 Ratings (312 Votes)
Calculation of taxable income and tax liability 2020 2021 2022 Particulars Amount Amount Amount Pretax Income as per GAAP 100000 125000 90000 Add Incomes taxable and expenses inadmissible Prepaid rent 20000 Warranty claims 30000 Less Incomes nontaxable and expenses admissible Prepaid rent 20000 Warranty claims 10000 10000 Interest on municipal bonds 500 500 500 Taxable income 149500 94500 79500 Tax liability 25 37375    See Answer
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