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Income tax expense and net income for the years 2007 to 2014 for the Quark Donut Company Answer

Income tax expense and net income for the years 2007 to 2014 for the Quark Donut Company Answer

Income tax expense and net income for the years 2007 to 2014 for the Quark Donut Company Answer

Using the information from the case below develop a Spreadsheet to find income tax expense and net
income for the years
2007 to 2014 for the Quark Donut Company Inc.
Submit the spreadsheet results and the formulas and answer all questions required below!
THE CASE
Quark Donut Company was incorporated (as a C corporation) and started business in 2007, make and sell donuts. Quark rented space in a local mall with a 8 year operating lease. Quark’s only capital expenditure
was the purchase in January of 2007 of equipment at a cost of $280,000. This equipment has an economic life of 8 years and 0 expected salvage value. Quark uses straight line depreciation for computation of GAAP net income because this best reflects the true economic depreciation of the equipment. For income tax purposes Quark is permitted to use MACRS (the modified accelerated cost recovery system), and the equipment is considered to be in the 7 year class. Therefore the allowed MACRS rates are: 14.29 % the first year, 24.49% the second year, 17.49% the third year, 12.49% the fourth year 8.93% the fifth year, 8.92% in the sixth 8.93% in the seventh year and 4.46% in the 8th year. Depreciation is the only non -cash expense, and is the only source of a difference between taxable income and financial accounting income before tax. Assume an income
tax rate of 35% is enacted for the years 2007 – 2009. During the year 2010 a new income tax rate of 30% was enacted for 2010 to 2014. Projected revenues and operating expenses (excluding taxes and depreciation) are as follows:
Year 2007 2008 2009 2010
Revenues
$150,000
$180,000
$185,000
$190,000
Expenses
$100,000
$110,000
$113,000
$116,000
Year 2011 2012 2013 2014
Revenues
$195,000
$200,000
$
2,00,000
$200,000
Expenses
$127,000
$132,000
$135,000
$138,000
_____________________________________________________________
Required:
I. Use a spreadsheet to find: (note: your spreadsheet is the answer to part I)
a. Income taxes paid that year(current income tax payable)
b. deferred tax liability
c. the change in deferred tax liability (equal to deferred income tax expense)
d. total income tax expense,
e. net income
II. Using the numbers from your spreadsheet hand write the correct journal
entry for income taxes for the year 2010.
III. Find the effective tax rate for 2010 and explain why the effective tax rate for 2010 is not 30%

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Income tax expense and net income for the years 2007 to 2014 for the Quark Donut Company

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