The DeVille Company reported pretax accounting income on its income statement as

Question

The DeVille Company reported pretax accounting income on its income statement as follows:
   

   
Included in the income of 2018 was an installment sale of property in the amount of $54,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $21,600 in 2019, $27,000 in 2020, and $5,400 in 2021.

Included in the 2020 income was $22,000 interest from investments in municipal bonds.

The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond.

Required:
Prepare the year-end journal entries to record income taxes for the years 2018–2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Explanation / Answer

. Journal Entry Date Account Desription , Title Debit Credit 2018 Income Tax Expense $123,000 Deffered Tax Expense $16,200 Income Tax Payable $106,800 To Record Income Tax Expense & DTL Created 2019 Income Tax Expense $97,380 Deffered Tax Expense $8,100 Income Tax Payable $105,480 To Record Income Tax Expense & DTL Reversal 2020 Income Tax Expense $100,000 Deffered Tax Expense $6,750 Income Tax Payable $106,750 To Record Income Tax Expense & DTL Reversal 2021 Income Tax Expense $110,000 Deffered Tax Expense $1,350 Income Tax Payable $111,350 To Record Income Tax Expense & DTL Reversal Working Note for Computation of Income Tax Expense, Deffered Tax Liability 2018 2019 2020 2021 Pretax Accounting Income $410,000 $330,000 $400,000 $440,000 Less: installment of Sales -$54,000 Add: Cash Collected on Installment $21,600 $27,000 $5,400 Taxable Income $356,000 $351,600 $427,000 $445,400 Tax Rate 30% 30% 25% 25% Income Tax Payable as per Taxable income $106,800 $105,480 $106,750 $111,350 Deferred Tax Liability Created at the End $16,200 $8,100 $1,350 $0 =54000*30% =(54000-21600)*25% =54000-21600-27000)25% =54000-21600-27000-5400)25% Deffered Tax Reversal - $8,100.00 $6,750.00 $1,350.00 (16200-8100) (8100-1350) (1350-0) Income Tax Expense $123,000.00 $97,380.00 $100,000.00 $110,000.00

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