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Chapter 19: 14Q (page 1093)

Addison Co. has one temporary difference at the beginning of 2017 of \(500,000. The deferred tax liability established for this amount is \)150,000, based on a tax rate of 30%. The temporary difference will provide the following taxable amounts: \(100,000 in 2018, \)200,000 in 2019, and $200,000 in 2020. If a new tax rate for 2020 of 20% is enacted into law at the end of 2017, what is the journal entry necessary in 2017 (if any) to adjust deferred taxes?

Short Answer

Expert verified

The temporary difference is the variation in the amounts of total assets or liabilities of an organization due to the carrying amountentered in the financial position statement and the income tax section of the company.

Step by step solution

01

Computation of the deferred tax liability for 2017

Deferredtaxliability=Taxableamount脳Changeintaxrates=$200,000脳30%-20%=$200,000脳10%=$20,000

02

Journal Entry

Addison Co.
Journal Entry

Date

Particulars

Debit

Credit

2017

Deferred tax liability

$20,000

Income tax expense

$20,000

(To record the income tax expense)

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Most popular questions from this chapter

The accounting records of Shinault Inc. show the following data for 2017 (its first year of operations).

1. Life insurance expense on officers was \(9,000.

2. Equipment was acquired in early January for \)300,000. Straight-line depreciation over a 5-year life is used with no salvage value. For tax purposes, Shinault used a 30% rate to calculate depreciation.

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Jennifer Capriati Corp. has a deferred tax asset account with a balance of \(150,000 at the end of 2016 due to a single cumulative temporary difference of \)375,000. At the end of 2017, this same temporary difference has increased to a cumulative amount of \(450,000. Taxable income for 2017 is \)820,000. The tax rate is 40% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2016. Instructions (a) Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that the deferred tax asset will be realized. (b) Assuming that it is more likely than not that $30,000 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2017 to record the valuation account.

Oxford Corporation began operations in 2017 and reported pretax financial income of \(225,000 for the year. Oxford鈥檚 tax depreciation exceeded its book depreciation by \)40,000. Oxford鈥檚 tax rate for 2017 and years thereafter is 30%. In its December 31, 2017, balance sheet, what amount of deferred tax liability should be reported?

At December 31, 2017, Appaloosa Corporation had a deferred tax liability of \(25,000. At December 31, 2018, the deferred tax liability is \)42,000. The corporation鈥檚 2018 current tax expense is $48,000. What amount should Appaloosa report as total 2018 income tax expense?

The pretax financial income of Truttman Company differs from its taxable income throughout each of 4 years as follows. Pretax Taxable Year Financial Income Income Tax Rate 2017 \(290,000 \)180,000 35% 2018 320,000 225,000 40 2019 350,000 260,000 40 2020 420,000 560,000 40

Pretax financial income for each year includes a nondeductible expense of $30,000 (never deductible for tax purposes). The remainder of the difference between pretax financial income and taxable income in each period is due to one depreciation temporary difference. No deferred income taxes existed at the beginning of 2017. Instructions (a) Prepare journal entries to record income taxes in all 4 years. Assume that the change in the tax rate to 40% was not enacted until the beginning of 2018. (b) Prepare the income statement for 2018, beginning with Income before income taxes.
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