Brief Exercise 16-10 Multiple tax rates [LO16-5] J-Matt, Inc., had pretax accoun

Question

Brief Exercise 16-10 Multiple tax rates [LO16-5]

J-Matt, Inc., had pretax accounting income of $331,000 and taxable income of $400,000 in 2016. The only difference between accounting and taxable income is estimated product warranty costs for sales this year. Warranty payments are expected to be in equal amounts over the next three years. Recent tax legislation will change the tax rate from the current 40% to 30% in 2018.

  

1.

     

2.

Prepare the appropriate journal entry. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)

    

J-Matt, Inc., had pretax accounting income of $331,000 and taxable income of $400,000 in 2016. The only difference between accounting and taxable income is estimated product warranty costs for sales this year. Warranty payments are expected to be in equal amounts over the next three years. Recent tax legislation will change the tax rate from the current 40% to 30% in 2018.

Explanation / Answer

1. Difference Between taxable income and accounting income

    400000 - 331000 = 69000

To be equally distributed in 3 year = 69000/3 = 23000

Income Tax Payable = taxable income * Current tax rate

                                     400000 * 40% = 160000

Deferred Tax Asset = 9200 + 6900 + 6900 = 23000

Income tax expense = 160000 -23000 = 137000

2.

2017 2018 2019 Amount 23000 23000 23000 Taxrate 40% 30% 30% Deferred tax Asset 9200 6900 6900

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