Zekany Corporation would have had identical income before taxes on both its inco
ID: 2416047 • Letter: Z
Question
Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2013 through 2016 except for differences in depreciation on an operational asset. The asset cost $190,000 and is depreciated for income tax purposes in the following amounts:
2013 $ 62,700 2014 83,600 2015 28,500 2016 15,200
The operational asset has a four-year life and no residual value. The straight-line method is used for financial reporting purposes. Income amounts before depreciation expense and income taxes for each of the four years were as follows. 2013 2014 2015 2016 Accounting income before taxes and depreciation $ 105,000 $ 125,000 $ 115,000 $ 115,000 Assume the average and marginal income tax rate for 2013 and 2014 was 30%; however, during 2014 tax legislation was passed to raise the tax rate to 40% beginning in 2015. The 40% rate remained in effect through the years 2015 and 2016. Both the accounting and income tax periods end December 31. Required: Prepare the journal entries to record income taxes for the years 2013 through 2016. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)
Explanation / Answer
Answer
Notes
Figures in $
Particulars
Income before taxes and depreciation
Depreciation as per income tax
Income before income taxes
Income tax rate
Income tax amount to be Paid
A
B
C
D
A-B
C*D
2013
105000
62700
42300
30%
12690
2014
125000
83600
41400
30%
12420
2015
115000
28500
86500
40%
34600
2016
115000
15200
99800
40%
39920
Accounting books
Income tax books
Figures in $
Particulars
Depreciation
Closing value of assets
Depreciation
Closing value of assets
Temporary difference
Income tax rate for next year
Differed tax liability balance
Differed tax liability to be created/ to be reversed
A
B
C
D
Balance difference of current and preceding year
A-B
C*D
2013
47500
142500
62700
127300
15200
30%
4560
4560
2014
47500
95000
83600
43700
51300
40%
20520
15960
2015
47500
47500
28500
15200
32300
40%
12920
-7600
2016
47500
0
15200
0
0
NA
NA
-12920
190000
190000
Journal Entries to record income taxes for the years 2013 through 2016
Year 2013
Income tax expense A/c Dr. $ 12690
To Income tax payable A/c Cr. $ 12690
Differed Tax expense A/c Dr. $ 4560
To Differed Tax liability A/c Cr. $ 4560
Profit & loss A/c Dr. $ 17250
To Income tax expense A/c Cr. $ 12690
To Differed tax expense A/c Cr. $ 4560
Year 2014
Income tax expense A/c Dr. $ 12420
To Income tax payable A/c Cr. $ 12420
Differed Tax expense A/c Dr. $ 15960
To Differed Tax liability A/c Cr. $ 15960
Profit & loss A/c Dr. $ 28380
To Income tax expense A/c Cr. $ 12420
To Differed tax expense A/c Cr. $ 15960
Year 2015
Income tax expense A/c Dr. $ 34600
To Income tax payable A/c Cr. $ 34600
Differed Tax liability A/c Dr. $ 7600
To Differed Tax benefits A/c Cr. $ 7600
Profit & loss A/c Dr. $ 27000
Differed tax benefits A/c Dr. $ 7600
To Income tax expense A/c Cr. $ 34600
Year 2016
Income tax expense A/c Dr. $ 39920
To Income tax payable A/c Cr. $ 39920
Differed Tax liability A/c Dr. $ 12920
To Differed Tax Benefits A/c Cr. $ 12920
Profit & loss A/c Dr. $ 27000
Differed tax benefits A/c Dr. $ 12920
To Income tax expense A/c Cr. $ 39920
Particulars
Income before taxes and depreciation
Depreciation as per income tax
Income before income taxes
Income tax rate
Income tax amount to be Paid
A
B
C
D
A-B
C*D
2013
105000
62700
42300
30%
12690
2014
125000
83600
41400
30%
12420
2015
115000
28500
86500
40%
34600
2016
115000
15200
99800
40%
39920
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