Question

Early in January 2019, Oler, Inc., purchased equipment costing $48,000. The equipment had a 2-year useful life and was depreciated in the amount of $24,000 in 2019 and 2020. Oler deducted the entire $48,000 on its tax return in 2019. This difference was the only one between its tax return and its financial statements. Oler's income before depreciation expense and income taxes was $708,000 in 2019 and $735,000 in 2020. The tax rate in each year was 25%. Required a. What amount of deferred tax liability should Oler report in 2019 and 2020? 2019 $ 6000 2020 $ (6,000) b. Prepare the journal entries to record income taxes for 2019 and 2020. General Journal Description Debit Credit Income taxes payable To record income taxes for 2019. Income tax expense To record income taxes for 2020.

Answer 1

Part A

2019	6000
2020	0

In 2019, Deferred tax liability (temporary difference) = 24000 * 25% = 6000

In 2020, Deferred tax liability = $ 0 as the temporary difference reverses to zero

Part B

General journal
Description	Debit	Credit
Income tax expense (708000-24000)*25%	171000
Income taxes payable		165000
Deferred income tax liability		6000
To record income taxes for 2019
Income tax expense (735000-24000)*25%	177750
Deferred income tax liability	6000
Income taxes payable		183750
To record income taxes for 2020

Part C

General journal
Description	Debit	Credit
Income tax expense (708000-24000)*30%	205200
Income taxes payable		198000
Deferred income tax liability (24000*30%)		7200
To record income taxes for 2019
Income tax expense (735000-24000)*30%	213300
Deferred income tax liability	7200
Income taxes payable		220500
To record income taxes for 2020