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Chapter 19: Question 9BE (page 1094)

Shetland Inc. had pretax financial income of \(154,000 in 2017. Included in the computation of that amount is insurance expense of \)4,000 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $10,000. Prepare Shetland鈥檚 journal entry to record 2017 taxes, assuming a tax rate of 45%.

Short Answer

Expert verified

Depreciation is a term used in accountswhere the value of fixed assets the organization owns decreases because of its usage. It is charged as an expense and is deductedfrom theasset's actual value.

Step by step solution

01

Computation of income tax payable and deferred tax liability

Incometaxpayable=(FinancialIncome+Insuranceexpence-Accountingdepreciation)脳Taxrate=($154,000+$4,000-$10,000)脳45%=$148,000脳45%=$66,600

DeferredTaxliability=Accountingdepreciation脳Taxrate=$10,000脳45%=$4,500

02

Journal entry

Shetland Inc.

Journal Entry

Date

Particulars

Debit

Credit

2017

Income tax expense

$71,100

Income tax payable

$66,600

Deferred tax liability

$4,500

(To record the income tax expense)

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Most popular questions from this chapter

What are the two objectives of accounting for income taxes?

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