Reconstructing information about income taxes. Lilly Company reports the following information about its financial statements and tax return for a year:
|
Depreciation Expense from Financial Statements |
$322,800 |
|
Financial Statement Pretax Book Income |
190,800 |
|
Income Tax Expense from Financial Statements |
42,000 |
|
Income Taxes Payable from Tax Returns |
27,600 |
Together the federal and state governments tax taxable income at a rate of 40%. Permanent differences result from municipal bond interest that appears as revenue in the financial statements but is exempt from income taxes. Temporary differences result from the use of accelerated depreciation for tax returns and straight line depreciation for financial reporting. Reconstruct the income statement for financial reporting and for tax reporting for the year, identifying temporary differences and permanent differences.