4. Tomorrow Publications reported pretax accounting income in 2016, 2017, and 20

Question

4. Tomorrow Publications reported pretax accounting income in 2016, 2017, and 2018 of $80 million, $115 million, and $105 million, respectively. The 2016 income statement does not include $20 million of magazine subscriptions received that year for one- and two-year subscriptions. The subscription revenue is reported for tax purposes in 2016. The revenue will be recognized in 2017 ($15 million) and 2018 ($5 million). The income tax rate is 40% each year. 2017 115 (15) 2018 105 3 2016 Pre-accounting Income 80 Subtract: Subscription 0 Revenue from IS Add: Subscription Revenue from tax 20 return 100 100 100 Taxable Income Return

Explanation / Answer

$ in millions 2016 2017 2018 Total

pretax accounting income $80

temporary difference:

-subscription revenue in income statement 20 $(15) $(5) $(20)

taxable income return $100

tax rate 40% 40%

tax payable (currently) $40

Journal Entry

Date Particulars Debit Credit

2016 Income tax expense 32

deferred tax rate 8

To income tax payable 40

2017 income tax expense 46

To deferred tax asset 6

to income tax payable 40

2018 income tax expense 42  

To deferred tax asset 2

To income tax payable 40

Newsmont has total deferred revenue of $ 10,000,000 ans pays a tax rate of 35% ,therefore future taxable income will be lower than future accounting income so we will consider future deductible amount of $10,000,000

$10,000,000 *35% =$3500000

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