Question

The following information is available for Novak Corporation for 2019 (its first year of operations).

1.		Excess of tax depreciation over book depreciation, $42,400. This $42,400 difference will reverse equally over the years 2020–2023.
2.		Deferral, for book purposes, of $20,300 of rent received in advance. The rent will be recognized in 2020.
3.		Pretax financial income, $272,300.
4.		Tax rate for all years, 20%.

Compute taxable income for 2019.

Taxable income Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019. ( Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming taxable income of $345,800.

Answer 1

Part A

Pretax financial income for 2019	272300
Excess of tax depreciation over book depreciation	(42400)
Rent received in advance	20300
Taxable income	$250200

Part B

Date	Account titles and explanation	Debit	Credit
2019	Income Tax Expense (272300*20%)	54460
	Deferred Tax Asset (20300*20%)	4060
	Income Tax Payable (250200*20%)		50040
	Deferred Tax Liability (42400*20%)		8480

Part C

Date	Account titles and explanation	Debit	Credit
2020	Income Tax Expense	71100
	Deferred Tax Liability (42400/4*20%)	2120
	Income Tax Payable (345800*20%)		69160
	Deferred Tax Asset		4060