In 2013, Ryan Management collected rent revenue for 2014 tenant occupancy. For f

Question

In 2013, Ryan Management collected rent revenue for 2014 tenant occupancy. For financial reporting, the rent is recognized as income in the period earned, but for income tax reporting it is taxed when collected. The unearned portion of the rent collected in 2013 was $30 million and $20 million at the end of 2014. Taxable income is $130 million. No temporary differences existed at the beginning of the year, and the tax rate is 30%.

Prepare the appropriate journal entry to record income taxes for 2014. (If no entry is required for an event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

In 2013, Ryan Management collected rent revenue for 2014 tenant occupancy. For financial reporting, the rent is recognized as income in the period earned, but for income tax reporting it is taxed when collected. The unearned portion of the rent collected in 2013 was $30 million and $20 million at the end of 2014. Taxable income is $130 million. No temporary differences existed at the beginning of the year, and the tax rate is 30%.

Prepare the appropriate journal entry to record income taxes for 2014. (If no entry is required for an event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Explanation / Answer

Unearned rent in 2013 is $30 million and at the end of 2014 it is $20 million. So the rent collected is $10 million. For income tax reporting, rent is taxed in the year collected. Taxable income is $130 million Plus rent collected in 2014 $10 million, totals to $140 million. Tax rate is 30%. So tax liability is $140 million * 30% = $42 million. Journal entry for income tax for 2014 will be as follows:

Income Tax expense                      Dr.          $42

Federal income tax liability          Cr.                          $42

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