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In Year7, Marks first year of business, Mark reported $300,000 of pretax book (GAAP) income. Key line items follow:
GAAP (book) income given below:
Other revenue 600,000
Installment revenue 50,000
Other expense (340,000)
Warranty expense (10,000)
for a total of
Pre-tax income 300,000
For tax purposes only 20,000 of the installment revenue will be reported in Year7.
For tax purposes, only 2,000 of warranty expense is deductible in Year7.
The current and expected future tax rate is 20%. No tax payments were made during the year.
1. What is taxable income for Year7?
2. Prepare the journal entry to record taxes at the end of Year7. Report any changes to deferred tax assets and liabilities separately in your entry.
For #2, choose from these account titles related to income taxes:
Taxes receivable
Taxes payable
Deferred tax asset
Deferred tax liability
Tax expense
Tax benefit
Valuation allowance
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