Question

Wildhorse corporation has one temporary difference at the end of 2025 that will reverse and cause taxable amounts of $59,900 in 2026, $64,800 in 2027, and $70,000 in 2028. wildhorse's pretax financial income for 2025 is $280,000, and the tax rate is 30% for all years. there are no deferred taxes at the beginning of 2025.prepare the income tax expense section of the income statement for 2025, beginning with the line "income before income taxes." (enter negative amounts using elther a negative sign preceding the number eg. -45 or parentheses e,g. (45)

Answer 1

To calculate the income tax expense section of the income statement for 2025, determine the taxable income for each year and apply a 30% tax rate. Calculate the deferred tax liabilities for the years 2026, 2027, and 2028 using the taxable amounts. Finally, subtract the sum of deferred tax liabilities from the pretax financial income for 2025.

Step-by-step explanation:

To calculate the income tax expense section of the income statement for 2025, we need to determine the taxable income for each year and apply the tax rate of 30%. The temporary difference that will reverse and cause taxable amounts for 2026, 2027, and 2028 can be considered as deferred tax liabilities.

1. Calculate the taxable income for each year:
   • 2026: $59,900
   • 2027: $64,800
   • 2028: $70,000
2. Calculate the deferred tax liabilities for each year by multiplying the taxable income by the tax rate of 30%:
   • 2026: $59,900 * 0.30 = $17,970
   • 2027: $64,800 * 0.30 = $19,440
   • 2028: $70,000 * 0.30 = $21,000
3. Calculate the income tax expense for 2025 by subtracting the sum of deferred tax liabilities from the pretax financial income for 2025: $280,000 - ($17,970 + $19,440 + $21,000) = $221,590

Therefore, the income tax expense section of the income statement for 2025, starting with the line 'income before income taxes,' would be:

Income before income taxes: $280,000
Less: Income tax expense: $221,590
Net income: $58,410