Question

Brief Exercise 19-9 Sandhill Inc. had pretax financial income of $163,000 in 2017. Included in the computation of that amount is insurance expense of $3,700 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $9,300 Prepare Sandhill's journal entry to record 2017 taxes, assuming a tax rate of 40%. (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

Answer 1

Solution:
	Account Titles and Explanation	Debit	Credit
	Income Tax Expense	66,680
	Income Tax Payable		62,960
	Deferred Tax Liability		3,720
Working Notes:
	Income Tax Payable
	Pretax financial income	163,000	a
	Add: Not deductible insurance expense	3,700	b
	Less: Additional Depreciation for tax purpose	9,300	c
	Taxable income	157,400	d=a+b-c
	Tax rate	40%	e
	Income Tax Payable	62,960	f=d x e
	Deferred Tax Liability
Notes:	Deferred Tax Liability is Tax benefit on additional Depreciation expense for tax purpose will not be available in future so, DTL is created.
	Deferred Tax Liability
	Additional Depreciation for tax purpose	9,300	a
	Tax rate	40%	b
	Deferred Tax Liability	3,720	c=a x b
	Income Tax Expense = Income Tax Payable + Deferred Tax Liability
	Income Tax Expense = 62,960 + 3,720
	Income Tax Expense =$66,680
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