Assume the following facts for Munoz Company in 2019. Munoz reported pretax financial income of $800,000. In addition, Munoz reported the following differences between its pretax financial income and taxable income: • Interest income of $120,000 was received during 2019 from an investment in municipal bonds. This income is exempt for tax purposes. • Rent income of $40,000 was collected in 2018 and included for tax purposes during that year. For financial statement purposes, it will be reported as earned equally in 2019 and 2020. • An asset with a 5-year life was purchased during 2019; straight-line depreciation for book purposes was $50,000. MACRS depreciation expense for 2019 was $120,000. • Warranty expense of $20,000 was recognized on the 2019 income statement, while $4,000 was recognized for tax purposes. (Assume a 1-year warranty contract.) The balance of the Deferred Tax Asset account (debit) at January 1, 2019, was $16,000 as a result of the rent income temporary difference. The tax rate for all years was 40%. Munoz has positive verifiable evidence of future taxable income. Required: 1. Calculate the amount of Munoz’s 2019 taxable income.
Assume the following facts for Munoz Company in 2019. Munoz reported pretax financial income of $800,000. In addition, Munoz reported the following differences between its pretax financial income and taxable income: • Interest income of $120,000 was received during 2019 from an investment in municipal bonds. This income is exempt for tax purposes. • Rent income of $40,000 was collected in 2018 and included for tax purposes during that year. For financial statement purposes, it will be reported as earned equally in 2019 and 2020. • An asset with a 5-year life was purchased during 2019; straight-line depreciation for book purposes was $50,000. MACRS depreciation expense for 2019 was $120,000. • Warranty expense of $20,000 was recognized on the 2019 income statement, while $4,000 was recognized for tax purposes. (Assume a 1-year warranty contract.) The balance of the Deferred Tax Asset account (debit) at January 1, 2019, was $16,000 as a result of the rent income temporary difference. The tax rate for all years was 40%. Munoz has positive verifiable evidence of future taxable income. Required: 1. Calculate the amount of Munoz’s 2019 taxable income.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Assume the following facts for Munoz Company in 2019. Munoz reported pretax financial income of $800,000. In addition, Munoz reported the following differences between its pretax financial income and taxable income:
| • | Interest income of $120,000 was received during 2019 from an investment in municipal bonds. This income is exempt for tax purposes. |
| • | Rent income of $40,000 was collected in 2018 and included for tax purposes during that year. For financial statement purposes, it will be reported as earned equally in 2019 and 2020. |
| • | An asset with a 5-year life was purchased during 2019; straight-line depreciation for book purposes was $50,000. MACRS depreciation expense for 2019 was $120,000. |
| • | Warranty expense of $20,000 was recognized on the 2019 income statement, while $4,000 was recognized for tax purposes. (Assume a 1-year warranty contract.) |
The balance of the Deferred Tax Asset account (debit) at January 1, 2019, was $16,000 as a result of the rent income temporary difference. The tax rate for all years was 40%. Munoz has positive verifiable evidence of future taxable income.
Required:
| 1. | Calculate the amount of Munoz’s 2019 taxable income. |
| 2. | Prepare Munoz’s income tax |
| 3. | Calculate Munoz’s effective income tax rate for 2019. |
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