Deferred Tax Liability Illustration: Starfleet Corporation has one temporary dif

Question

Deferred Tax Liability Illustration: Starfleet Corporation has one temporary difference at the end of 2017 that will reverse and cause taxable amounts of $55,000 in 2018, $60,000 in 2019, and $75,000 in 2020. Starfleet's pretax financial income for 2017 is $400,000, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2017, Instructions a) Compute taxable income and income taxes payable for 2017. b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017.

Explanation / Answer

Requirement a Computation of taxable income and Income tax payable for 2017 Pretax Financial income        4,00,000 Less: Temporary difference 55,000+60,000+75,000        1,90,000 Net Taxable Income        2,10,000 Income tax payable @ 30% 210,000 X30%            63,000 Deferred Tax Liability for 2017 Pretax Financial income        4,00,000 Income tax payable @ 30% 400,000 X 30%        1,20,000 Deferred Income taxes 120,000-63,000            57,000 Requirement b Accounts Titles Debit Credit Income Tax Expense                            1,20,000 Income tax Payable            63,000 Deferred income tax liability            57,000

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