Alsup Consulting sometimes performs services for which it receives payment at th

Question

Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2015–2018 are as follows:

  

  

     There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is 40%.

(Hint: You may find it helpful to prepare a schedule that shows the balances in service revenue receivable at December 31, 2015–2018.)

Prepare the appropriate journal entry to record Alsup's 2016 income taxes, Alsup’s 2017 income taxes and Alsup’s 2018 income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands.)

Service Revenue Collections Pretax Accounting
Income   2015 $ 624,000 $ 599,000 $ 160,000   2016 720,000 730,000 225,000   2017 685,000 660,000 195,000   2018 670,000 690,000 175,000

Explanation / Answer

Year 2015 Pretax accounting income $160,000.00 Less: Service Revenue -$624,000.00 Add: Cash collections $599,000.00 Taxable income $135,000.00 Journal Entry Amt. in Thousands Tax Expenses $64.00 Deferred tax liability (40% x (624,000 - $599,000)/1000 $10.00 Taxes payable (40% x 135,000)/1000 $54.00 Year 2016 Pretax accounting income $225,000.00 Less: Service Revenue -$720,000.00 Add: Cash collections $730,000.00 Taxable income $235,000.00 Journal Entry Amt. in Thousands Tax Expenses $90.00 Deferred tax liability (40% x (730,000 - $720,000)/1000 $4.00 Taxes payable (40% x 235,000)/1000 $94.00 Year 2017 Pretax accounting income $195,000.00 Less: Service Revenue -$685,000.00 Add: Cash collections $660,000.00 Taxable income $170,000.00 Journal Entry Amt. in Thousands Tax Expenses $78.00 Deferred tax liability (40% x (685,000 - $660,000)/1000 $10.00 Taxes payable (40% x 170,000)/1000 $68.00 Year 2018 Pretax accounting income $175,000.00 Less: Service Revenue -$670,000.00 Add: Cash collections $690,000.00 Taxable income $195,000.00 Journal Entry Amt. in Thousands Tax Expenses $70.00 Deferred tax liability (40% x (690,000 - $670,000)/1000 $8.00 Taxes payable (40% x 195,000)/1000 $78.00

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