Compute the effective income tax rate for 2013 and 2014., Taxation

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The following items caused the only differences between pretax financial income and taxable income.
• In 2013, the company collected $90,000 of rent; of this amount, $30,000 was earned in 2013; the other $60,000 will be earned equally over the 2014-2015 period. The full $90,000 was included in taxable income in 2013.
• The company pays $5,000 a year for life insurance on officers.
• In 2014, the company terminated a top executive and agreed to $60,000 of severance pay. The amount will be paid $20,000 per year for 2014-2016. The 2014 payment was made. The $60,000 was expensed in 2014. For tax purposes, the severance pay is deductible as it is paid.
• The enacted tax rates existing at December 31, 2013 are 35% for 2013 and 40% for 2014 and beyond.

REQUIRED:
(a) Determine taxable income for 2013 and 2014.
(b) Compute the total deferred tax asset / (liability) at the end of 2013 and 2014.
(c) Prepare the journal entry to record income taxes for 2013 and 2014.
(d) Compute net income for 2013 and 2014.
(e) Compute the effective income tax rate for 2013 and 2014.

 


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