Intraperiod tax allocation, income tax expense, and income tax liability
The following information has been obtained from the internal financial records of MTM Company:
|
Retained earnings, December 31, 2011 |
$1,259,000 |
|
Dividends declared and paid during 2012 |
100,000 |
|
Dividends declared during 2012 but not paid |
75,000 |
|
Dividends declared during 2011 and paid in 2012 |
90,000 |
|
2012 income from continuing operations (before taxes) |
850,000 |
|
Extraordinary losses in 2012 (before tax effect) |
135,000 |
The company”s tax rate is 35 percent. Assume that financial accounting income equals income for tax purposes.
REQUIRED:
a. What is the company”s net income for the year ended December 31, 2012?
b. Compute income tax expense reported in MTM”s 2012 income statement.
c. Prepare a reconciliation of retained earnings for the year ended December 31, 2012.
d. Assume that the income tax liability account had a balance of $70,000 on January 1, 2012, and that tax payments of $200,000 were made during 2012. What should be the balance in this account on December 31, 2012?