Zekany Corporation would have had identical income before taxes on both its inco

Question

Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2018 through 2021 except for differences in depreciation on an operational asset. The asset cost $210,000 and is depreciated for income tax purposes in the following amounts

: 2018 $ 69,300

2019 92,400

2020 31,500

2021 16,800

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. 2018 2019 2020 2021 Accounting income before taxes and depreciation $ 115,000 $ 135,000 $ 125,000 $ 125,000 Assume the average and marginal income tax rate for 2018 and 2019 was 30%; however, during 2019 tax legislation was passed to raise the tax rate to 40% beginning in 2020. The 40% rate remained in effect through the years 2020 and 2021. Both the accounting and income tax periods end December 31. Required: Prepare the journal entries to record income taxes for the years 2018 through 2021

1.Record 2018 income taxes.

2Record 2019

3.record 2020

4.record 2021

Note: Enter debits before credits.

Explanation / Answer

Jourrnal Entry Date Account Titles Debit Credit December 31, 2016 Income Tax Expense 18750 Deferred Tax Liability 5040 Income Tax Payable 13710 December 31, 2017 Income Tax Expense 30420 Deferred Tax Liability 17640 Income Tax Payable 12780 December 31, 2018 Income Tax Expense 29000 Deferred Tax Liability 8400 Income Tax Payable 37400 December 31, 2018 Income Tax Expense 29000 Deferred Tax Liability 14280 Income Tax Payable 43280 Notes: 1) Calculate Tax Payable 2018 2019 2020 2021 Pretax Accounting Income 1,15,000 1,35,000 1,25,000 1,25,000 Less Depreciation for Tax 69,300 92,400 31,500 16,800 Taxable Income (A) 45,700 42,600 93,500 1,08,200 Tax Rate (B) 30% 30% 40% 40% Tax Payable (A*B) 13710 12780 37400 43280 2) Calculate Temporary Difference 2018 2019 2020 2021 Cumm, Temporary Diff. Straight Line (210,000/4) 52,500 52,500 52,500 52,500 Less Tax Depreciation 69,300 92,400 31,500 16,800 Temporary Differences -16,800 -39,900 21,000 35,700 0 2016 -39,900 21,000 35,700 16,800 2017 21,000 35,700 56,700 2018 35,700 35,700 2019 0 3) Calculate Deferred Tax Liability 2018 2019 2020 2021 Cumulative Difference 16,800 56,700 35,700 0 Tax Rate 30% 40% (We use future rate) 40% 40% Year End Balance 5,040 22,680 14,280 0 Add Previous Balance 0 -5,040 -22,680 -14,280 Credit/(Debit) 5,040 17,640 -8,400 -14,280

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