Reference no: EM132686453
Harms Way Company (HWC) provides you with the following information for the year ended October 31, 2020. Your assignment is to calculate income tax expense, income taxes payable, and deferred income tax assets/liabilities. The end result will be a journal entry to record all of that. In addition, you must calculate HWC's effective tax rate and reconciliation to the federal statutory rate of 21%. You can explain the difference in words, if you wish.
Information provided:
1. Income before tax, as shown on HWC's GAAP statement of income = $2,440,000
2. Depreciation calculated under GAAP = $300,000. Depreciation as will be shown on the tax return = $475,000.
3. Interest income on municipal bonds, which is not subject to federal income tax = $150,000.
4. Fines recorded and paid during the year to the EPA for environmental violations = $450,000. Fines are not tax deductible.
5. Meals and entertainment expenses recorded during the year = $375,000. Only one-half (50%) of those expenses may be deducted for tax purposes.
6. At the end of the fiscal year (in October 2020), HWC received a payment of $750,000 from a client for a product to be delivered in November 2020. Under the tax law, that payment is taxable when received, not when the product is delivered.
Problem a: Calculate:
1. Income tax expense (GAAP).
2. Income taxes currently payable.
3. Deferred income taxes resulting from this year's operations.
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