Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

Nadal Inc. had two temporary differences at the end of 2013. The first differenc

ID: 2447696 • Letter: N

Question


Nadal Inc. had two temporary differences at the end of 2013. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadal's accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows:
Taxable amounts:
     2014: $40,000
     2015: $50,000
     2016: $60,000
     2017: $80,000
Deductible Amounts:
     2014: $0
     2015: $(15,000)
     2016: $(19,000)
     2017: $0

As of the beginning of 2013, the enacted tax rate is 34% for 2013 and 2014, and 38% for 2015-2018. At the beginning of 2013, the company had no deferred income taxes on its balance sheet. Taxable income is expected in all future years.

Instructions:
A. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013.
B. Indicate how deferred income taxes would be classified on the balance sheet at the end of 2013.

Explanation / Answer

Deferred tax liabillity 72,880

To income tax provision 72,880

This would be shown as deferred tax liability under the long term liabilities head with amount of $ 72,880

Taxable amounts deductible amount Taxable amount 2014                                  40,000                                           -                                    40,000 34%          13,600 2015                                  50,000                                (15,000)                                  35,000 38%          13,300 2016                                  60,000                                (19,000)                                  41,000 38%          15,580 2017                                  80,000                                           -                                    80,000 38%          30,400 Deferred tax liability          72,880