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gallo light began operations in 2024. the company sometimes sells used warehouses on an installment basis. in those cases, gallo light reports income in its income statement in the year of the sale. in its income tax return, though, gallo light reports installment income by the installment method. installment income in 2024 was $300,000, which gallo light expects to collect equally over the next three years. the tax rate is 25%, but based on an enacted law, is scheduled to become 30% in 2026. gallo light's pretax accounting income from the 2024 income statement was $837,000, which includes $47,000 of interest revenue from an investment in municipal bonds. there were no differences between accounting income and taxable income other than those described above. required: prepare the appropriate journal entry to record gallo light's 2024 income taxes. what is gallo light's 2024 net income?

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Final answer:

To record Gallo Light's 2024 income taxes, a journal entry is required. Gallo Light's 2024 net income can be calculated by subtracting the income tax expense from the pretax accounting income.

Step-by-step explanation:

To record Gallo Light's 2024 income taxes, we need to consider both the current tax rate and the future tax rate. The journal entry would be:

  1. Dr Income Tax Expense ([$837,000 - $300,000] * 25%)
    Cr Income Tax Payable ([$837,000 - $300,000] * 25%)
  2. Dr Income Tax Expense ($300,000 * 5%)
    Cr Deferred Tax Liability ($300,000 * 5%)


Gallo Light's 2024 net income can be calculated by subtracting the income tax expense from the pretax accounting income:

Net Income = Pretax Accounting Income - Income Tax Expense

Net Income = $837,000 - [($837,000 - $300,000) * 0.25]

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