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:

	Service Revenue			Collections			Pretax Accounting Income
2017	$	574,000		$	554,000		$	110,000
2018		670,000			680,000			175,000
2019		635,000			610,000			145,000
2020		620,000			640,000			125,000

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, 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

• Record 2018 income taxes.
• Record 2019 income taxes.
• Record 2020 income taxes.

Answer 1

Year 2017
Pretax accounting income	$ 110,000.00
Less: Service Revenue	$(574,000.00)
Add: Cash collections	$ 554,000.00
Taxable income	$   90,000.00
Journal Entry	Amount
	Debit	Credit
Tax Expenses	$   44,000.00
Deferred tax liability (40% x (574,000 - $554,000)		$   8,000.00
Taxes payable (40% x 90,000)		$ 36,000.00
Year 2018
Pretax accounting income	175000
Less: Service Revenue	-670000
Add: Cash collections	680000
Taxable income	185000
Journal Entry	Debit	Credit
Tax Expenses	70000
Deferred tax liability (40% x (670,000 - $680,000)	4000
Taxes payable (40% x 185,000)		74000
Year 2019
Pretax accounting income	145000
Less: Service Revenue	-635000
Add: Cash collections	610000
Taxable income	120000
Journal Entry	Debit	Credit
Tax Expenses	58000
Deferred tax liability (40% x (635,000 - $610,000)		10000
Taxes payable (40% x 120,000)		48000
Year 2020
Pretax accounting income	125000
Less: Service Revenue	-620000
Add: Cash collections	640000
Taxable income	145000
Journal Entry	Debit	Credit
Tax Expenses	50000
Deferred tax liability (40% x (620,000 - $640,000)	8000
Taxes payable (40% x 145,000)		58000