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 2017-2020 are as follows: Pretax Accounting Service Revenue Collections Income 2017 2018 $240,000 305,000 275,000 255,000 $691,000 800,000 765,000 750,000 $671,000 810,000 730,000 775,000 2019 2020 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, 2017- 2020.) Required: 1. Prepare the appropriate journal entry to record Alsup's 2018 income taxes, Alsup's 2019 income taxes and Alsup's 2020 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.)

Record 2018 income taxes

record 2019 income taxes

record 2020 income taxes

Answer 1

Solution:

Computation of Taxable income and Tax Payable - Alsup Consulting Particulars 2018 2019 2020 Pre tax accounting income Add: Service revenue collection Less: service revenue as per books $305,000.00 $810,000.00 $800,000.00 $275,000.00 $ 730,000.00 $765,000.00 $255,000.00 $775,000.00 $750,000.00 Taxable income Income Tax (40%) $315,000.00 $126,000.00 $240,000.00 $96,000.00 $280,000.00 $112,000.00 19 20 21 22 23 24 25 28 29 30 31 32 33 35 36 37 38 39 40 41 43 et276 Sheet276 (2) ) Sheet278 Sheet279 Sheet322 (2)

M N. 2020 Computation of Temporary differences - Alsup Consulting Particulars 2017 2018 2019 Beginning service revenue receivables $0.00 $20,000.00 $10,000.00 Service Revenue $691,000.00 $800,000.00 $765,000.00 Collection $671,000.00 $810,000.00 $ 730,000.00 ending service revenue receivables $20,000.00 $10,000.00 $45,000.00 $45,000.00 $750,000.00 $775,000.00 $20,000.00 Taxable (Deductible Temporary differences) $20,000.00 $10,000.00 $35,000.00 $25,000.00 Deferred tax liability (reversal) for the year $8,000.00 $4,000.00 $14,000.00 $10,000.00 14 16 17 19 20 21 22 23 24 25 27 28 29 30 31 32 33 35 36 37 38 39 40 41 42 43 et276 Sheet276 (2) ) Sheet278 Sheet279 Sheet322 (2)

12 TR VK 13 14 | 15 Credit (In '000) | Journal Entries - Alsup Consulting Date Particulars Debit (In '000) 31-Dec-18 Income tax expense Dr $122.00 Deferred tax liability Dr $4.00 To Income tax payable (To record income tax and deferred taxes) 17 18 $126.00 19 20 21 | $110.00 22 31-Dec-19 Income tax expense Dr To Income tax payable To Deferred tax liability (To record income tax and deferred taxes) $96.00 $14.00 $102.00 $10.00 31-Dec-20Income tax expense Dr Deferred tax liability Dr To Income tax payable |(To record income tax and deferred taxes) $112.00 36 37 38 39 40 53 54 | 55 56 57 et276 Sheet276 (2) ) Sheet278 ) Sheet279 Sheet322 (2)