Question

Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2013 through 2016 except for differences in depreciation on an operational asset. The asset cost $110,000 and is depreciated for income tax purposes in the following amounts:

2013	$	36,300
2014		48,400
2015		16,500
2016		8,800

The operational asset has a four-year life and no residual value. The straight-line method is used for financial reporting purposes.

Income amounts before depreciation expense and income taxes for each of the four years were as follows.

	2013			2014			2015			2016
Accounting income before taxes and depreciation	$	70,000		$	90,000		$	80,000		$	80,000

Assume the average and marginal income tax rate for 2013 and 2014 was 30%; however, during 2014 tax legislation was passed to raise the tax rate to 40% beginning in 2015. The 40% rate remained in effect through the years 2015 and 2016. Both the accounting and income tax periods end December 31.

Required:

Prepare the journal entries to record income taxes for the years 2013 through 2016. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

Answer 1

Date	General Journal	Debit	Credit
Dec. 31, 2013	Income tax expense	12750
	Deferred tax liability		2640
	Income tax payable		10110
Dec. 31, 2014	Income tax expense	18750
	Deferred tax liability		6270
	Income tax payable		12480
Dec. 31, 2015	Income tax expense	23970
	Deferred tax liability	1430
	Income tax payable		25400
Dec. 31, 2016	Income tax expense	21000
	Deferred tax liability	7480
	Income tax payable		28480

	2013	2014	2015	2016
Pretax accounting income	70000	90000	80000	80000
Depreciation for tax	(36300)	(48400)	(16500)	(8800)
Taxable income	33700	41600	63500	71200
Tax rate	30%	30%	40%	40%
Tax payable	10110	12480	25400	28480

	2013	2014	2015	2016	Cumulative Temporary Difference
Straight-line	27500	27500	27500	27500
Tax depreciation	(36300)	(48400)	(16500)	(8800)
Temporary differences:	(8800)	(20900)	11000	18700
2013		(20900)	11000	18700	8800
2014			11000	18700	29700
2015				18700	18700
2016					0

Cumulative difference	8800	29700	18700	0
Tax rate	30%	30%	40%	40%
Year-end balance	2640	8910	7480	0
Previous balance	0	(2640)	(8910)	(7480)
Credit/(debit)	2640	6270	(1430)	(7480)