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Chapter 19: Q3E. (page 1095)

Bandung Corporation began 2017 with a \(92,000 balance in the Deferred Tax Liability account. At the end of 2017, the related cumulative temporary difference amounts to \)350,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2017 is \(525,000, the tax rate for all years is 40%, and taxable income for 2017 is \)405,000. Instructions (a) Compute 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�

Short Answer

Expert verified

Income before income tax is a term prescribed under the organization's income statement, which defines the total revenue earned during the year exclusive of the taxes.

Step by step solution

01

(a) Computation of income taxes payable for the year 2017.

Particulars

Amount

Taxable income for the year 2017

$405,000

Multiply: Tax rate

40%

Income tax payable for 2017

$162,000

02

Computation of deferred tax asset and income tax expense for the year 2017

Particulars

2018

2019

Total

Taxable income

$175,000

$175,000

$350,000

Multiply: Tax rate

40%

40%

Deferred tax liability

$70,000

$70,000

$140,000

Particulars

Amount

Deferred tax liability at the end

$140,000

Less: Deferred tax liability at the beginning

$92,000

Deferred tax expense for 2017

$48,000

Add: Current tax expense for 2017

$162,000

Income tax expense for 2017

$210,000

03

(b) Journal entry

Date

Particulars

Debit

Credit

2017

Income tax expense

$210,000

Income tax payable

$162,000

Deferred tax liability

$48,000

(To record the income tax expense)

04

(c) Income statement for the year 2017.

Income Statement for the year 2017

Particulars

Amount

Income before income tax

$525,000

Less: Income tax expense

Current tax expense

$162,000

Deferred tax expense

$48,000

$210,000

Net Income

$315,000

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Most popular questions from this chapter

At December 31, 2017, Percheron Inc. had a deferred tax asset of \(30,000. At December 31, 2018, the deferred tax asset is \)59,000. The corporation鈥檚 2018 current tax expense is $61,000. What amount should Percheron report as total 2018 income tax expense?

How are deferred tax assets and deferred tax liabilities reported on the balance sheet?

What are some of the reasons that the components of income tax expense should be disclosed and a reconciliation between the effective tax rate and the statutory tax rate be provided?

Where can authoritative IFRS related to the accounting for taxes be found?

Nadal Inc. has two temporary differences at the end of 2016. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadal鈥檚 accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows. 2017 2018 2019 2020 Taxable amounts \(40,000 \)50,000 \(60,000 \)80,000 Deductible amounts (15,000) (19,000) \(40,000 \)35,000 \(41,000 \)80,000 As of the beginning of 2016, the enacted tax rate is 34% for 2016 and 2017, and 38% for 2018鈥�2021. At the beginning of 2016, the company had no deferred income taxes on its balance sheet. Taxable income for 2016 is $500,000. Taxable income is expected in all future years. Instructions (a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (b) Indicate how deferred income taxes would be classified on the balance sheet at the end of 2016.
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