Question

Case Development began operations in December 2018. When property is sold on an installment basis, Case recognizes installment financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2018 installment income was $640,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2019-2021 are as follows: 2019 2020 2021 $140,000 30% 350,000 40 150,000 40 Pretax accounting income for 2018 was $902,000, which includes interest revenue of $32,000 from municipal bonds. The enacted tax rate for 2018 is 30%. Required: 1. Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Case's 2018 income taxes. 2. What is Case's 2018 net income?

Answer 1

$ $ Requirement 1 Pre Tax Accounting Income Less: Permanent Difference Pre Tax Income subject to tax Less: Installment Income (to be taxed when collected) Taxable income 902,000 (32,000) 870,000 (640,000) 230,000 $ $ Deferred Tax Liability: DTL Year 2019 Year 2020 Year 2021 140,000 350,000 150,000 30% $ 40% $ 40% $ $ 42,000 140,000 60,000 242,000 $ Journal Entry: Tax Expense ( 242000 +69000) Deferred Tax Liability Taxes Payable 230,000*30% Debit Credit $311,000 $242,000 69,000 Requirement 2 $ Pre Tax Accounting Income Less: Tax Expense Net Income 902,000 ($311,000) $591,000