The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the year ended December 31, 2012, its first year of operations. The enacted income tax rate is 30% for all years.
Pretax accounting income $700,000
Excess tax depreciation (320,000)
Litigation accrual 70,000
Unearned rent revenue deferred on the books but appropriately recognized in taxable income 80,000
Interest income from New York municipal bonds (20,000)
Taxable income $510,000
1. Excess tax depreciation will reverse equally over a four-year period, 2013-2016.
2. It is estimated that the litigation liability will be paid in 2016.
3. Rent revenue will be recognized during the last year of the lease, 2016.
4. Interest revenue from the New York bonds is expected to be $20,000 each year until their maturity at the end of 2016.
Instructions
(a) Prepare a schedule of future taxable and (deductible) amounts.
(b) Prepare a schedule of the deferred tax (asset) and liability.
(c) Since this is the first year of operations, there is no beginning deferred tax asset or liability. Compute the net deferred tax expense (benefit).
(d) Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2012.
The May 31, 2012, balance per bank statement for Upton Company was $7,200. The cash balance per books was $9,500. Outstanding checks amounted to $800, and deposits in transit were $2,400. The bank statement contained an NSF check for $500, a service charge for $25, and a debit memo for direct payment of the telephone bill of $175.
Required:
1) Prepare a bank reconciliation to determine the true cash balance at May 31, 2012.