Question

Sage Corporation began operations in 2017 and reported pretax financial income of $230,000 for the year. Sage’s tax depreciation exceeded its book depreciation by $40,000. Sage’s tax rate for 2017 and years thereafter is 30%. Assume this is the only difference between Sage’s pretax financial income and taxable income.

Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Show how the deferred tax liability will be classified on the December 31, 2017, balance sheet.

Deferred tax liability should be classified as a current assetcurrent liabilitynon-current assetnon-current liability on the December 31, 2017, balance sheet.

Answer 1

Part 1

Account titles and explanation	Debit	Credit
Income tax expense (230000*30%)	69000
Deferred tax liability (40000*30%)		12000
Income tax payable (balancing figure)		57000

Part 2

Deferred tax liability should be classified as a non-current liability $//img.homeworklib.com/questions/42b34d90-6f61-11ea-aa44-b733f518ecb3.gif?x-oss-process=image/resize,w_560$ on the December 31, 2017, balance sheet.

Deferred tax accounts are classified according to the related asset. Thus, property, plant,and equipment being noncurrent asset, deferred tax liability is to be classified as a non-current liability