Hong Kong Baptist University, Hong Kong

ACCT 2006

Question 1 Deferred tax asset/liability/Permanent Differences Havaci SpA reports pretax financial income of €80,000 for 2022. The following items cause taxable income to be different than pretax financial income. 1. Depreciation on the tax return is greater than depreciation on the income statement by €16,000. 2. Rent collected on the tax return is greater than rent revenue reported on the income statement by €27,000. 3. Fines for pollution appear as an expense of €11,000 on the income statement. Havaci’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2022. Instructions a. Compute taxable income and income taxes payable for 2022. b. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2022.