You will review the income tax return of Panache Inc. and prepare the necessary journal entries related to income taxes. You are required to make a copy of the tax return that Celia Brown, the previous controller, prepared, and then

You will review the income tax return of Panache Inc. and prepare the necessary journal entries related to income taxes.
You are required to make a copy of the tax return that Celia Brown, the previous controller, prepared, and then begin comparing the tax return to the draft of the company’s financial statements.
You prepare the following schedule for this year:

Panache, Inc.
Book/Tax Differences
2014
Description Financial Statement Amount Tax Return Amount
Depreciation $48,000 $40,000
Officers’ life insurance premiums $15,000 0
Interest revenue on municipal bonds $25,000 0
Product warranty costs $27,000 $20,000
Gross profit on installment sales $91,000 $80,000

In the tax file, you find the following schedule prepared by Ms. Brown:

Panache, Inc.
Deferred Tax Assets & Liabilities
December 31, 2015
  Item Amount Deferred Account Balance
Deferred Tax Asset
Warranties $49,500 $14,850
Deferred Tax Liabilities
Depreciation $41,800 $12,540
Installment Sales $15,700 $4,710

The company’s current tax rate is 30%, and no changes in future tax rates have been enacted.
Tasks:

  • Enter the information about book or tax differences in an Excel spreadsheet and identify which differences are permanent and which are temporary.
  • Assuming Panache’s operating income as reported on the draft of the income statement is $120,000, compute the taxable income and prepare the income tax entry needed in the same Excel spreadsheet. Also, assume the company expects to continue to be profitable and have the taxable income indefinitely.
  • Write a 3 page, memo to the company president, Mr. Cartwright, explaining the income tax items that will appear on the company’s balance sheet for December 31, 2015.
  • Cite any sources you use using the correct APA format on a separate page.
  • Using proper APA format, support your answers with appropriate scholarly research and evaluation.
Posted in Uncategorized