Reference no: EM133016908
Problem - The Dominiak Company reports the following information about its financial statements and tax return for 2019 (its first year of operations):
Depreciation Expense from Financial Statements $270,000
Financial Statements Pretax Income 160,000
Income Tax Expense from Financial Statements 36,000
Income Tax Payable from Tax Returns 24,000
Income Taxes paid, in cash, to the Tax collecting agency 19,500
The relevant tax rate for the year was 40%. Permanent differences result from interest on municipal bonds that appears as revenue in the financial statements but is exempt from income taxes. Timing differences result from the use of accelerated depreciation for tax returns and straight-line depreciation for financial reporting.
Required -
a. What were the temporary differences for 2019? What was the depreciation expense in the Tax return? Did the temporary differences create a deferred tax asset or a deferred tax liability?
b. What were the permanent differences for 2019? Did these differences create a deferred tax asset or a deferred tax liability?
c. What adjustments did Dominiak make on its 2019 Statement of Cash Flows (indirect method) to reflect income taxes?