has provided you the following information.
Year Taxable income Income tax rate
2014 $390,000 35%
2015 $320,000 37%
2016 $400,000 40%
2017 ($1,200,000) 40%
Colorado Company has decided to use the loss carryback and
carryforward provision as a result of the year 2017 loss. The enacted tax rate
remains at 40% after year 2017. Colorado Company has determined that a
valuation allowance is not necessary.
Prepare the journal entry on December 31, 2017 to record the
carryback and carryforward decision.
Part B (30 points)
The Matrix Company began operations as of the beginningof
2015. During 2015, Matrix reported GAAP
(book) income before taxes of $789,500. For income tax purposes, depreciation
expense was $150,000; for GAAP (book) purposes, depreciation expense was
$74,000. Matrix accrued $900,000 of revenue for GAAP (book) purposes during
2015; $600,000 of the accrued revenue was taxable during 2015. Matrix earned
interest of $79,800 from a municipal bond investment during 2015. Matrix’s
marginal income tax rate is 40%. Matrix did not make any income tax payments
Matrix’s taxable income for the year ended December 31, 2015.
Prepare the 2015 year-end journal entry to record
income tax expense.
600,000x 40% = 240,000
Interest Earned 79,800
x 40% = 31,920
+ 31,920 = 271,920
Part C (30 points)
each of the items below, determine whether the items are temporary differences
orpermanent differences. Also, for each temporary difference, you are required
to determinewhether a deferred tax asset or deferred tax liability is created
by the temporarydifference described. Assume that each of the temporary
differences described is anoriginating difference.
revenues received in advance
insurance where the tax deduction in future years will be less than the book
depreciation expense exceeds GAAP (book) depreciation expense
bad debt expense
dividends received deduction
sales revenue (recognized currently for GAAP, recognized for tax purposes when
cash is collected in future years)
insurance payments for executives for which the company is the beneficiary
paid for law violations
ary differences result in deferred tax assets or deferred tax
liabilities while permanent differences do not, and describe the difference in
the formation of deferred tax assets and deferred tax liabilities.