Southern Atlantic Distributors began operations in January 2

Southern Atlantic Distributors began operations in January 2018 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2018, 30% in 2019, and 20% in 2020. Pretax accounting income for 2018 was $280,000, which includes interest revenue of $40,000 from municipal bonds. The enacted tax rate is 30%. Assuming no differences between accounting income and taxable income other than those described above: Required: 1. Complete the following table given below and prepare the journal entry to record income taxes in 2018. 2. What is Southern Atlantic’s 2018 net income?

Complete the following table given below to record income taxes in 2018. (Enter your answers in thousands. Amounts to be deducted should be indicated with a minus sign.)

ournal entry worksheet

Record 2018 income taxes.

Note: Enter debits before credits.

Solution

Tax Rate % Tax $ Recorded as Pretax Accounting Income    280,000.00 Permanent Difference      40,000.00 Income subject to Taxation    240,000.00 X 30% =    72,000.00 Income Tax Expense Temporary Difference      10,000.00 X 30% =      3,000.00 Deferred Tax Liability Income Taxable in Current Year    230,000.00 X 30% =    69,000.00 Income Tax Payable Depreciation as per Straight line = $40,000 / 4 Years = $10,000 per annum Depreciation as per Tax Purposes - 2018 = $40,000 X 50% = $20,000 per annum Temporary difference due to Depreciation = $20,000 - $10,000 = $10,000 Journal Entry Date Particulars Dr. Amt. Cr. Amt. 2018 Income Tax Expense    72,000.00    Income Tax Payable    69,000.00    Deferred Tax Liability      3,000.00 (To record the Income Tax Expense)