Free Solved The following information has been obtained for the Gocker Corporation. 1. Prior to 2012, taxable income and pretax financial income were identical. 2. Pretax financial income is $1,709,500 in 2012 and $1,432,100 in 2013. 3. On January 1, 2012, equipment costing $1,372,000 is purchased. It is to be depreciated on a straightline basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Hint: Use the half-year convention for tax purposes, as discussed in Appendix 11A.) 4. Interest of $62,100 was earned on tax-exempt municipal obligations in 2013. 5. Included in 2013 pretax financial income is an extraordinary gain of $209,900, which is fully taxable. 6. The tax rate is 37% for all periods. 7. Taxable income is expected in all future years. (a) Compute taxable income and income taxes payable for 2013. Taxable income $ Income taxes payable $


Step 1 of 2

In the question, the information that includes changes in pretax financial income, the purchase of equipment with different depreciation methods for tax and financial reporting purposes, tax-exempt interest income, an extraordinary gain that is fully taxable, and a constant tax rate of 37%.

Taxable income and income taxes payable for the “Gocker” for the year 2013 is to be computed.

Explanation:

Taxable income and income tax payable for the “Gocker” is to be computed on the basis of given information.

 

Step 2 of 2

Taxable income -Taxable income is a tax accounting that indicates the amount used to compute income tax payable.

By using the optional straight-line method, the business deducts half of the total allowable depreciation in the first year after the property is placed into service.

Taxable income for 2013
Pretax financial income for 2013 $1,432,100
-less : Depreciation $137,200
Pretax financial income for 2013 $1,294,900
+add : Extraordinary gain $209,900
Taxable income $1,504,800

Income tax payable -37% of taxable income

Income tax payable =37×1,504,800

Income tax payable = $556,776

Working note –

Depreciation = $1344000

Equipment cost: $1,372,000

Depreciation period for tax purposes: 5 years Half-year convention for tax purposes

Annual depreciation for tax purposes = $1,372,0005=$274,400

Half-year depreciation for tax purposes (2012) = $274,4002=$137,200

Explanation:

Taxable income is computed by subtracting the depreciation amount from the pretax financial income for 2013 and the outcome value is added with extraordinary gain .Now the computed taxable income is multiplied by the given tax rate .

 

Final solution

1) Taxable income for 2013 is $1,504,800

2) Income tax payable for 2013 is 37% of taxable income

Income tax payable = $556,776

 

 

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