Interim reporting Flashcards
Whereas, the Seller holds a 1-year promissory note receivable in the amount of $300,000 from Kelly Capital Corporation.
Whereas, both the Seller and the Purchaser agree the promissory note receivable has a fair market value of $307,000
Whereas, the Seller has agreed to pay the Purchaser 4% interest per annum upon the maturity of the promissory note receivable.
Note purchase: Second quarter – $3,000, Fourth quarter – $0. Interest income should be recognized over the period in which it was earned. The interest received of $12,000 ($300,000 × 4%) relates to the period from September 30, Year 1, to September 30, Year 2. Thus, the interest income recognized in the income statement for the second quarter is $3,000 ($12,000 ÷ 4), and no interest income should be recognized in the income statement for the fourth quarter.
Total Taxes Due $90,000
‘L>0/’
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First installment $30,000 Due Apr 1 YR2
Second installment $30,000 Due Jul 1 YR2
Third installment $30,000 Due Oct 1 YR2
Property taxes: Second quarter – $(22,500), Fourth quarter – $(22,500). The property taxes of $90,000 for Year 2 relates to all four quarters and should be prorated at $22,500 ($90,000 ÷ 4) per quarter, regardless of the timing of the payments.
Provision for taxes on operating income
It shouldn’t take more than two hours. As a reminder, the tax department updated the tax rates for us to use going forward, last week. Our enacted tax rate is 35% and our estimated annual effective tax30,000. At the end of each quarter, the entity should estimate the annual effective tax rate for ordinary income or loss. This rate is used to determine income taxes on a current year-to-date basis. The calculation of this rate always excludes, among other things, significant (1) unusual items, (2) infrequently occurring items, and (3) discontinued operations. Thus, the provision for taxes on operating income for the third quarter is $30,000 ($120,000 × 25% estimated annual effective tax rate). rate is 25%.
