On the next slide, Revenue of $100,000 consists of municipal bond interest of $10,000 and service revenue of $90,000.1. What is taxable income?2. What is the amount of income tax payable currently?3. What is GAAP net income before taxes?4. What is current income tax expense?5. What is the amount of the deferred income tax asset or liability?6. What is your journal entry to record income tax?

Wang Repair Corporation (First Year of Operation)

Cash $28,000 Revenue $100,000 Accounts Receivable 20,000 Expenses:

Allow. for doubtful accounts (2,000) 18,000 Salaries Expense 27,000 Equipment (5-year life) 10,000 Supplies Expense 20,000

Accumulated Depreciation (2,000) 8,000 Insurance & Utilities 9,000 Building & Land 200,000 Property Tax Expense 1,000

Accumulated Depreciation (4,000) 196,000 Interest Expense 10,000 Deferred Income Tax Depreciation Expense 6,000 Other Assets 50,000 Bad Debts Expense 3,000

Total Assets $300,000 Other Expense/Loss 4,000 Accounts Payable 15,000 Total Expense 80,000 Mortgage-10% (Due 2011) 100,000 Net Income before Tax 20,000 Income Tax Payable-Current 3,000 Income Tax-Current $3,000 Deferred Income Tax Liability Income Tax-Deferred 3,000

Total Liabilities $118,000 Net Income after tax (loss) $17,000 Common Stock ($10 Par) 165,000 Retained Earnings - Begin. Balance 0 Retained Earnings 17,000 Subtotal 17,000 Stockholders' Equity 182,000 Less: Dividends Total Liabilities & Equity $300,000 Retained Earnings - End. Balance 17,000

Corporation was organized by Mr. Wang on January 1, 2010. He owns all of the stock.The accountant prepared the financial statements above without considering the income tax law. You may determine that the financial statements need to be revised.Each question is independent. Company is expected to realize deferred tax assets.The company expects to be in same tax bracket in future years.

Balance Sheet Balances: 12-31-10 Income Statement-2010

1 Tax-exempt interest received on state & municipal obligations2 Proceeds of life insurance of corp. on lives of key employees

B. Some book expenses are never deductible for tax purposes. 1 Expenses incurred in earning tax-exempt interest2 Prem. for life insurance of corp. on lives of key employees3 Fines and expenses resulting from a violation of law4 Disallowed travel and entertainment costs5 Political contributions6 Federal income tax per books, based on GAAP (SFAS No. 109)

C. Some tax deductions are never taken for book purposes. 1 The dividends-received deduction2 The U.S. production activities deduction3 Percentage depletion of natural resources in excess of cost

Book income vs. taxable income Many transactions. CORPORATE BOOK-TAX DIFFERENCES.

Permanent. Permanent differencesA. Some book income is never taxed for regular tax (maybe for AMT).

See complete file on webpage for a list of 24 common items resulting in book-tax differences.T0-Chp-14-5-Schedule-M-Items