Question

Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2015–2018 are as follows:

  

	Service Revenue			Collections			Pretax Accounting Income
2015	$	602,000		$	572,000		$	130,000
2016		690,000			700,000			195,000
2017		655,000			625,000			165,000
2018		640,000			660,000			145,000

  

There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is 40%.

(Hint: You may find it helpful to prepare a schedule that shows the balances in service revenue receivable at December 31, 2015–2018.)

Required:

1.	Prepare the appropriate journal entry to record Alsup's 2016 income taxes, Alsup’s 2017 income taxes and Alsup’s 2018 income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands.)

Answer is not complete. No Event General Journal Debit Credit 78,000 Income tax expense Deferred tax liability Income tax payable 4,000 74,000 Income tax expense Deferred tax liability 000 000 000 66,000 12,000 Income tax payable 78,000 X 58.000 x Income tax expense Deferred tax liability Income tax payable 8,000 50,000

Answer 1

Please find below table useful to compute desired results: -

с D 1 А Service Revenue 2 Year 1 602000 3 Year 2 690000 4 Year 3655000 5 Year 4 640000 6 Taxable Income 7 Year 1 =(D2-B2+C2)*40% 8 Year 2 =D3-B3+C3)*40% 9 Year 3 =(D4-B4+C4)*40% 10 Year 4 =(D5-B5+C5)*40% Collections Pretax Accounting Income 572000 130000 700000 195000 625000 165000 660000 145000 Deferred tax liability Tax Expense =B2-C2)*40% =B7+C7 =(B3-C3)*40% =B8+C8 =(B4-C4)*40% I=B9+C9 =(B5-C5)*40% =B10+C10 Journal Entry Debit Credit =D7 11 12 No. 13 1 General Journal Income Tax expense Deferred Tax liability Income Tax payable 14 15 16 =B7 Income Tax expense Deferred Tax liability Income Tax payable =D8 =-C8 =D8 =D9 Income Tax expense Deferred Tax liability Income Tax payable =C9 =B9 23 25 4. Income Income Tax expense Deferred Tax liability Income Tax payable =D10 =-C10 =B10

End results would be as follows: -

А 1 Year 1 Year 2 Year 3 Year 4 2 3 4 5 6 7 8 9 10 B Service Revenue 602.000 690.000 655,000 640,000 Taxable Income 40,000 82.000 54,000 66,000 D Pretax Accounting Income 130,000 195,000 165,000 145,000 Tax Expense 52.000 78,000 66,000 58.000 Collections 572.000 700.000 625.000 660,000 Deferred tax liability 12.000 (4.000) 12.000 (8,000) Journal Entry Debit 52.000 Year 1 Year 2 Year 3 Year 4 12 No. Credit General Journal 1 Income Tax expense Deferred Tax liability Income Tax payable 12.000 40,000 15 2 Income Tax expense Deferred Tax liability Income Tax payable 78,000 4.000 78,000 66.000 3 Income Tax expense Deferred Tax liability Income Tax payable 12.000 54.000 4 Income Tax expense Deferred Tax liability Income Tax payable 58.000 8,000 66,000