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.)

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:

Explanation / Answer

2015 Pretax accounting income 290000 Deduct: Service revenue -741000 Add: Cash collections 716000 Taxable income 265000 Tax expense (plug) 116000 Deferred tax liability (40% x 25,000) 10000 Taxes payable (40% x 265,000) 106000 Deferred Tax Liability 10000 2015 2016 Pretax accounting income 355000 Deduct: Service revenue -850000 Add: Cash collections 855000 Taxable income 360000 Tax expense (plug) 146000 Deferred tax liability (40% x 5,000) 2000 Taxes payable (40% x 360,000) 144000 Deferred Tax Liability 10000 2015 2016 2000 2017 Pretax accounting income 325000 Deduct: Service revenue -815000 Add: Cash collections 795000 Taxable income 305000 Tax expense (plug) 130000 Deferred tax liability (40% x 20,000) 8000 Taxes payable (40% x 305,000) 122000 Deferred Tax Liability 10000 2015 2016 2000 8000 2017 2018 Pretax accounting income 305000 Deduct: Service revenue -800000 Add: Cash collections 820000 Taxable income 325000 Tax expense (plug) 138000 Deferred tax liability (40% x 20,000) 8000 Taxes payable (40% x 325,000) 130000 Deferred Tax Liability 10000 2015 2016 2000 8000 2017 2018 8000

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