Question

Tamarisk Corporation began 2017 with a $89,100 balance in the Deferred Tax Liability account. At the end of 2017, the related cumulative temporary difference amounts to $362,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2017 is $572,900, the tax rate for all years is 40%, and taxable income for 2017 is $433,650.

(A) Compute income Taxes Payable for 2017.

Income Taxes Payable $_________________

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (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

(C) Prepare the income tax expense section of the income statement for 2017 beginning with the line “Income before income taxes.”. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

	Tamarisk Corporation
	Income Statement (Partial)
???		$
??
???	$
??	$
		$
????		$

Answer 1

Solution A:

Income Tax Payable = Taxable income * Tax rate = $433,650 *40% = $173,460

Solution B:

Cumulative temporary difference = $362,000

Deferred tax liability at the end of 2017 = $362,000 * 40% = $144,800

Deferred tax liability at the beginning of 2017 = $89,100

Hence, Deferred tax expense for the year 2017 = $144,800- $89,100 = $55,700

Total income tax expense = Income tax payable + Deferred tax expense = $173,460 + $55,700 = $229,160

Account Title and Explanation	Debit	Credit
Income Tax Expense Dr	$2,29,160
To Income Tax Payable		$1,73,460
To Deferred Tax Liability		$55,700
(To record Income Tax expense, deferred income tax and Income tax payable for 2017)

Solution C:

Tamarisk Corporation
Income Statement (Partial)
Income Before Income Taxes		$5,72,900
Income Tax Expense- Current	$1,73,460
Income Tax Expense- Deferred	$55,700
		$2,29,160
Net Income (Loss)		$3,43,740