Question

In 2018, DFS Medical Supply collected rent revenue for 2019 tenant occupancy. For income tax reporting, the rent is taxed when collected. For financial statement reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy the rental property. The deferred portion of the rent collected in 2018 amounted to $300.000 at December 31, 2018. DFS had no temporary differences at the beginning of the year. Required: Assuming an income tax rate of 40% and 2018 income tax payable of $950,000, prepare the journal entry to record income taxes for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record 2018 income taxes. Note: Enter debits before credits Event General Journal Debit Credit

Answer 1

Answer

• $ 300000 amount received in advance is not a ‘revenue’ as per books, but for ‘tax’ purposes, the same is considered as part of ‘taxable income’.
• This means that taxable income is MORE than Pretax accounting income.
• This temporary difference will lead to creation of Deferred Tax Assets.
• Deferred tax assets = $ 300000 x 40% = $ 120,000
• Journal entry

Event	General Journal	Debit	Credit
1	Interest Expense	$830,000
	Deferred Tax Assets	$120,000
	Income Tax Payable		$950,000