Exercise 19-17 Taxable income and pretax financial income would be identical for

Question

Exercise 19-17

Taxable income and pretax financial income would be identical for Huber Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared.

Taxable income

2013

2014

2015

$170,200

$216,800

$94,800

8,100

8,100

8,100

(5,800)

(5,800)

(5,800)

$172,500

$219,100

$97,100

Pretax financial income

2013

2014

2015

$170,200

$216,800

$94,800

24,300

–0–

–0–

(17,400)

–0–

–0–

$177,100

$216,800

$94,800

The tax rates in effect are 2013, 45%; 2014 and 2015, 50%. All tax rates were enacted into law on January 1, 2013. No deferred income taxes existed at the beginning of 2013. Taxable income is expected in all future years.

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013, 2014, and 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

Pretax financial income 2013 2014 2015 Excess of revenues over expenses (excluding two temporary differences) $ 170,200.00 $ 216,800.00 $            94,800.00 Installment gross profit earned $      8,100.00 $      8,100.00 $               8,100.00 Estimated cost of warranties $      5,800.00 $      5,800.00 $               5,800.00    Income before taxes $ 172,500.00 $ 219,100.00 $            97,100.00 Income Tax Rate 45% 50% 50% Income Tax $    77,625.00 $ 109,550.00 $            48,550.00 Deffered Tax Assets (5800*2*50%) $      5,880.00 $      2,940.00 $               2,940.00 Deffered Tax Liablities (8100*2*50%) $      8,100.00 $      4,050.00 $               4,050.00 Tax Expenses for the Year $    79,845.00 $ 110,660.00 $            47,440.00 Debit Credit 2013 Income Tax Expenses $                    77,625.00 To Income Tax Payable $                     77,625.00 Deffered Tax Assets (5800*2*50%) $                      5,880.00 Deffered Tax Liablities (8100*2*50%) $                       8,100.00 Profit & Loss $                      2,220.00 2014 Income Tax Expenses $                  109,550.00 To Income Tax Payable $                  109,550.00 Deffered Tax Assets $                       2,940.00 Deffered Tax Liablities $                      4,050.00 Profit & Loss $                       1,110.00 2015 Income Tax Expenses $                    48,550.00 To Income Tax Payable $                     48,550.00 Deffered Tax Assets $                       2,940.00 Deffered Tax Liablities $                      4,050.00 Profit & Loss $                       1,110.00

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