The pretax financial income of Sweet Company differs from its taxable income throughout each of 4...
Question:
The pretax financial income of Sweet Company differs from its taxable income throughout each of 4 years as follows.
| Year | Pretax Financial Income | Taxable income | Tax Rate |
| 2020 | $318,000 | $168,000 | 35% |
| 2021 | 342,000 | 228 000 | 20% |
| 2022 | 348,000 | 239,000 | 20% |
| 2023 | 388,000 | 526,000 | 20% |
Pretax financial income for each year includes a nondeductible expense of $30,600 (never deductible for tax purposes). The remainder of the difference between pretax financial income and taxable income in each period is due to one depreciation temporary difference. No deferred income taxes existed at the beginning of 2020.
1. Prepare journal entries to record income taxes in all 4 years. Assume that the change in the tax rate to 20% was not enacted until the beginning of 2021.
2. Prepare the income statement for 2021, beginning with income before income taxes.
Income Statement:
This financial statement shows the total expenses and income made by a company during a financial year. All the expenses are deducted from the revenue to calculate net income or net profit.
Answer and Explanation: 1
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2020:
Temporary difference = Pretax financial income + Non-deductible expense - Taxable income
Temporary difference = 318,000 + 30,600 -...
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