A. Income Taxes The following differences enter into the reconciliation of finan

Question

A. Income Taxes The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the year ended December 31, 2017, its first year of operations. The enacted income tax rate is 30% for all years.

Pretax financial income $800,000

Excess tax depreciation (480,000)

Unearned rent revenue deferred on the books   60,000

but appropriately recognized in taxable income

Taxable income $380,000

1. Excess tax depreciation will reverse equally over a four-year period, 2018-2021.

2. Rent revenue will be recognized during the last year of the lease, 2021.

Required: 1. Prepare a schedule of future taxable and (deductible) amounts and calculate the deferred tax asset and liability at the end of 2017.

2. Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2017.

Explanation / Answer

1 Schedule of future taxable and (deductible) amounts: 2018 2019 2020 2021 Total Depreciation 120000 120000 120000 120000 480000 (480000/4) Unearned rent -60000 -60000 Deferred tax liability=480000*30%=$ 144000 Deferred tax Asset=60000*30%=$ 18000 2 Journal entry: Debit Credit Income tax expense 240000 Deferred tax asset 18000 Deferred tax liability 144000 Income tax payable (380000*30%) 114000

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