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Chapter 19: Q11IFRS (page 1115)

Callaway Corp. has a deferred tax asset account with a balance of \(150,000 at the end of 2017 due to a single cumulative temporary difference of \)375,000. At the end of 2018, this same temporary difference has increased to a cumulative amount of \(500,000. Taxable income for 2018 is \)850,000. The tax rate is 40% for all years.

Instructions

(a)Record income tax expense, deferred income taxes, and income taxes payable for 2018, assuming that it is probable that the deferred tax asset will be realized.

(b) Assuming that it is probable that $30,000 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2018 to recognize this probability.

Short Answer

Expert verified

a) Income tax expense is debited $290,000, deferred tax asset is debited by $50,000 and income tax payable is credited by $340,000

b) Income tax expense is debited, and deferred tax asset is credited by $30,000, respectively.

Step by step solution

01

Meaning of Income-tax.

A business's tax responsibility to the government in which it operates is known as "income tax payable."

02

(a) Preparing journal entries.

Date

Particulars

Debit ($)

Credit ($)

Income tax expense

290,000

Deferred tax asset

50,000

Income tax payable

340,000

Working notes:

Calculation of income tax payable

Income鈥�tax鈥�payable=Taxable鈥�income脳Enacted鈥�tax鈥�rate=$850,000脳40%=$340,000

Deferred Tax

Date

Cumulative future taxable (Deductible) amount

Taxrate

(Asset)

Liability

12/31/18

$(500,000)

40%

$(200,000)

Deferred tax asset at the end of 2018
$200,000
Deferred tax asset at the beginning of 2018
150,000
Deferred tax benefit for 2018 (increase in deferred tax asset)
(50,000)
Current tax expense for 2018 (Income taxes payable)
340,000
Income tax expense for 2018
$290,000
03

 Step 3: (b) Preparing journal entries.

Date

Particulars

Debit ($)

Credit ($)

Income Tax Expense

30,000

Deferred Tax Asset

30,000

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Most popular questions from this chapter

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?

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?

Presented below are two independent situations related to future taxable and deductible amounts resulting from temporary differences existing at December 31, 2017. 1. Mooney Co. has developed the following schedule of future taxable and deductible amounts. 2018 2019 2020 2021 2022 Taxable amounts \(300 \)300 \(300 \) 300 \(300 Deductible amount 鈥� 鈥� 鈥� (1,600) 鈥� 2. Roesch Co. has the following schedule of future taxable and deductible amounts. 2018 2019 2020 2021 Taxable amounts \)300 \(300 \) 300 \(300 Deductible amount 鈥� 鈥� (2,300) 鈥� Both Mooney Co. and Roesch Co. have taxable income of \)4,000 in 2017 and expect to have taxable income in all future years. The tax rates enacted as of the beginning of 2017 are 30% for 2017鈥�2020 and 35% for years thereafter. All of the underlying temporary differences relate to noncurrent assets and liabilities. Instructions For each of these two situations, compute the net amount of deferred income taxes to be reported at the end of 2017, and indicate how it should be classified on the balance sheet.

South Carolina 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 \(65,000 in 2020. South Carolina鈥檚 pretax financial income for 2017 is \)300,000, 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. (c) Prepare the income tax expense section of the income statement for 2017, beginning with the line 鈥淚ncome before income taxes.鈥�

Mitchell Corporation had income before income taxes of \(195,000 in 2017. Mitchell鈥檚 current income tax expense is \)48,000, and deferred income tax expense is $30,000. Prepare Mitchell鈥檚 2017 income statement, beginning with Income before income taxes.
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