Question

Determine the amounts necessary to record income taxes for 2013 and prepare the appropriate journal entry. What is Fidelity's 2013 net income?

Option 1:
Income Tax Expense: $390,800
Net Income: $586,200

Option 2:
Income Tax Expense: $400,000
Net Income: $577,000

Option 3:
Income Tax Expense: $420,000
Net Income: $557,000

Option 4:
Income Tax Expense: $375,000
Net Income: $602,000

Answer 1

To calculate income tax expense and net income, the pre-tax income and tax rate are needed. With those figures, one can subtract the income tax expense from the pre-tax income to arrive at the net income. Without this information, the correct option cannot be determined.

Step-by-step explanation:

To determine the correct amounts to record for income taxes and to find the net income for 2013, we need the initial income before taxes. Unfortunately, that information isn't provided in the question. Assuming we had the pre-tax income figure, the process would involve calculating the tax expense based on the applicable tax rate, and then subtracting that tax expense from the pre-tax income to arrive at the net income.

For illustration, if the pre-tax income was $1,000,000, and the income tax rate was 40%, the income tax expense would be $1,000,000 x 0.40 = $400,000. The net income would then be $1,000,000 - $400,000 = $600,000. Here's how you would record that in a journal entry:

Debit Income Tax Expense $400,000

Credit Income Taxes Payable $400,000

Without the initial income figure or a tax rate, however, we cannot determine which option is correct among those provided.