1. EMC began operations during 2004. Taxable income in 2005 was $829,000. Basis differences asof 12/31/04 and 12/31/05 are as follows:Description of differenceProperty, Plant, & Equipment, net:GAAP basisTax basisBasis difference12/31/04Investments â€“ TradingGAAP basis (fair value)Tax basis (cost or amortized cost)Basis differenceThe enacted income tax rate is 40% for 2004 and all future years.12/31/05$1,102,0001,000,000$102,000$785,000903,000($118,000)$1,880,0001,800,000$80,000$823,000948,000($125,000)Requirement:Prepare the income tax journal entries that EMC should make for the year ended 12/31/05.2. For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. Thisincluded meals and entertainment expense of $8 and $20 in depreciation expense. For incometax purposes, MACRS depreciation amounted to $23.1)What type of differences, permanent differences or temporary differences, does Centipede Corp.have for the current year?2)Prepare Centipedeâ€™s journal entry to recognize income taxes payable for the current year.Assume there were no other temporary or permanent differences. Centipedeâ€™s tax rate for all relevantyears is 40%.3)Centipedeâ€™s comparative balance sheets for two previous years show the following balances fordeferred tax assets and liabilities:Deferred Tax AssetDeferred Tax Liability12/31/06$3 million$6 million12/31/05$1.4 million$4.8 millionPrepare Centipedeâ€™s deferred tax journal entry for the year ended 12/31/06. Note that you do not haveenough information to determine how Centipede calculated its DTA and DTL balances.
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