Southern Atlantic Distributors began operations in January 2021 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 45% of cost in 2021, 30% in 2022, and 25% in 2023. Pretax accounting income for 2021 was $460,000, which includes interest revenue of $68,000 from municipal governmental bonds. The enacted tax rate is 25%.
Assuming no differences between accounting income and taxable income other than those described above:
Required:
1. Complete the following table given below and prepare the journal entry to record income taxes in 2021.
2. What is Southern Atlantic’s 2021 net income?

Answer:

1. Depreciation as per books = Cost of purchase/Useful life

Depreciation as per books = $40,000/4

Depreciation as per books = $10,000

Depreciation as per tax for 2021 = Cost of purchase * Deduction rate

Depreciation as per tax for 2021 = $40,000 * 45%

Depreciation as per tax for 2021 = $18,000

Temporary difference = $18,000 - $10,000

Temporary difference = $8,000

Particulars                              Amount    Tax Rate  Tax      Recorded as

Pretax accounting income $460,000

Permanent difference          -$68,000

Income subject to taxation   $392.00       25%    $98,000  Income tax expense

Temporary difference          -$8,000         25%   -$2,000   Deferred tax liability

Income taxable in                $384,000     25%   $96,000 Income tax payable

current year

  Journal Entries - Southern Atlantic Distributors

Date   Particulars  and Explanation   Debit   Credit

           Income tax expense                $98,000

                  To Income taxes payable                  $96,000

                  To Deferred tax liability                      $2,000

           (To record income tax expense)

2. Net income for 2021 = Pretax income - Income tax expense

Net income for 2021 = $460,000 - $98,000

Net income for 2021 = $362,000

Saul is a manager at Holden Apparels Inc. and is friends with the company's CEO. This privilege gives Saul the information that Holden Apparels is in the midst of talks to take over a leading rival. Saul buys stocks of Holden with the expectation that its stocks will appreciate. But the deal falls through and the stocks of Holden depreciate in the following months. Are Saul's actions unethical

Oering's Furniture Corporation is a Virginia-based manufacturer of furniture. In a recent year, it reported the following activities:

Net income $5,135
Purchase of property, plant, and equipment 1,071
Borrowings under line of credit (bank) 1,117
Proceeds from issuance of stock 11
Cash received from customers 37,164
Payments to reduce long-term debt 46
Sale of marketable securities 219
Proceeds from sale of property and equipment 6,894
Dividends paid 277
Interest paid 90
Purchase of treasury stock (stock repurchase) 2,583

Required:
Based on this information, present the cash flows from investing and financing activities sections of the cash flow statement. (List cash outflows as negative amounts.)