E19.2 (LO 1,2) (Two Differences, No Beginning Deferred Taxes, Tracked through 2

Question

E19.2 (LO 1,2) (Two Differences, No Beginning Deferred Taxes, Tracked through 2 Years) following information is available for Wenger Corporation for 2019 (its first year of operations). The 1. Excess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse equally over the years 2020-2023 2. Deferral, for book purposes, of $20,000 of rent received in advance. The rent will be recognized in 2020. 3. Pretax financial income, $300,000. 4. Tax rate for all years, 20%. Instructions a. Compute taxable income for 2019. b. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019. c. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming taxable income of $325,000.

Explanation / Answer

SOLUTION

A.

Journal Entry-

Particulars Amount ($) Pretax financial income for 2019 300,000 Less: Excess of tax depreciation over book depreciation (40,000) Add: Rent received in advance 20,000 Taxable Income 280,000

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