Exercise 19-15 Taxable income and pretax financial income would be identical for
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Question
Exercise 19-15 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 2016 2017 2018 Excess of revenues over expenses (excluding two temporary differences) Installment gross profit collected $160,000 $210,000 $90,000 8,000 8,000 8,000 Expenditures for warranties (5,000) (5,000) (5,000) Taxable income $163,000 $213,000 $93,000 Pretax financial income 2016 2017 2018 Excess of revenues over expenses (excluding two temporary differences) Installment gross profit recognized Estimated cost of warranties $160,000 $210,000 $90,000 24,000 (15,000) Income before taxes $169,000 $210,000 $90,000 The tax rates in effect are 2016, 40%; 2017 and 2018, 45%. All tax rates were enacted into law on January 1, 2016. No deferred income taxes existed at the beginning of 2016, 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 2016, 2017, and 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)Explanation / Answer
Journal Entries (Amounts in $)
Working Notes:-
1) Income tax payable is calculated by multiplying taxable income by relevant tax rate in the year.
2) Income tax expense for all the three year is calculated as balancing figure or by adjusting deferred taxes with income tax payable.
Date Account Titles and Explanations Debit Credit Dec. 31, 2016 Income Tax Expense (65,200+7,200-4,500) 67,900 Deferred tax Asset (15,000 - 5,000)*45% 4,500 Income Tax payable (163,000*40%) 65,200 Deferred tax liability (24,000 - 8,000)*45% 7,200 Dec. 31, 2017 Income Tax Expense (95,850+2,250-3,600) 94,500 Deferred tax liability (8,000*45%) 3,600 Income Tax payable (213,000*45%) 95,850 Deferred tax asset (5,000*45%) 2,250 Dec. 31, 2018 Income tax expense (41,850+2,250-3,600) 40,500 Deferred tax liability (8,000*45%) 3,600 Income tax payable (93,000*45%) 41,850 Deferred tax asset (5,000*45%) 2,250Related Questions
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