15 Feb Cedar Inc. began business on Jan. 1, 2019. Its pretax financial income for the first 2 years was as follows: 2019 750,000 2020 905,000 The following items caused the only diffe
Problem II: Cedar Inc. began business on Jan. 1, 2019. Its pretax financial income for the first 2 years was as follows:
2019 750,000
2020 905,000
The following items caused the only differences between pretax financial income and taxable income.
1. In Jan. 1, 2019, the company collects at once $54,000 of 3 years rent through 2020 for a leased warehouse.
2. The company pays, for environmental problems, $100,000 fine in 2019 and $25,000 fine in 2020.
3. In 2020, the company terminated a top executive and agreed to $1,500,000 of severance pay. The amount will
be paid $500,000 per year for 2020-24. The 2020 payment was made. The $1,500,000 was expensed in 2020.
For tax purposes, the severance pay is deductible as it is paid. The enacted tax rate is 20% for all years.
INSTRUCTIONS:
(a) Determine taxable income for 2019 and 2020.
(b) Prepare the journal entry to record income taxes for 2019 and 2020.
(c) Prepare the income tax expense section of the income statement for 2019 & 2020.
(d) Indicate how the income tax items should be presented on the balance sheet for 2019 and 2020.
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