The following facts relate to Corporation: Deferred tax liability, January 1, 20
ID: 2498556 • Letter: T
Question
The following facts relate to Corporation:
Deferred tax liability, January 1, 2014, $133,440.
Deferred tax asset, January 1, 2014, $0.
Taxable income for 2014, $316,920.
Pretax financial income for 2014, $556,000.
Cumulative temporary difference at December 31, 2014, giving rise to future taxable amounts, $800,640
Cumulative temporary difference at December 31, 2014, giving rise to future deductible amounts, $116,760
Tax rate for all years, 30%.
The company is expected to operate profitably in the future.
(a) Compute income taxes payable for 2014
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014
(c) Prepare the income tax expense section of the income statement for 2014, beginning with the line “Income before income taxes.”
Explanation / Answer
(a) Taxable income......................................................... $ 316,920
Enacted tax rate......................................................... X 30%
Income taxes payable............................................... $ 95,076
(b) Income Tax Expense................................................ 166,800
Deferred Tax Asset.................................................... 35,028
Income Taxes Payable...................................... 95,076
Deferred Tax Liability........................................ 106,752
Deferred Tax
Liability
30%
$240,192
30%
$240,192
*Because of a flat tax rate, these totals can be reconciled: $683,880 X 30% = $(35,028) + $240,192.
Deferred tax liability at the end of 2015................................ $240,192
Deferred tax liability at the beginning of 2015.................... (133,440)
Deferred tax expense for 2015 (increase
required in deferred tax liability)........................................ $106,752 Deferred tax asset at the end of 2015.................................. $35,028
Deferred tax asset at the beginning of 2015....................... 0
Deferred tax benefit for 2015 (increase
required in deferred tax asset).......................................... $ (35,028)
Deferred tax expense for 2015.............................................. $ 106,752
Deferred tax benefit for 2015.................................................. (35,028)
Net deferred expense for 2015.............................................. 71,724
Current tax expense for 2015 (Income taxes payable)..... 95,076
Income tax expense for 2015................................................. $ 166,800
(c) Income before income taxes................................ $ 556,000
Income tax expense
Current.............................................................. $95,076
Deferred............................................................ 71,724 166,880
Net income............................................................... $389,120
Pretax financial income.......................................................... $556,000
Net originating temporary difference
giving rise to future taxable amounts (389,120)
Originating temporary difference giving
rise to future deductible amounts..................................... 116,760
Taxable income...................................................................... $ 283,640
Temporary Difference Future Taxable (Deductible) Amounts Tax Rate (Asset)Liability
Item one $ 800,64030%
$240,192
Item two ($ 116,760)30%
$(35,028) Totals $ 683,880 $(35,028)$240,192
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