Question

E19.3, (LO 1, 2) Excel (One Temporary Difference, Future Taxable Amounts, One Rate, beginning Deferred Taxes) Bandung Corporation began 2020 with a $46,000 balance in the Deferred Tax Liability account. At the end of 2020, the related cumulative temporary difference amounts to $350,000, and it will reverse evenly over the next 2 vears. Pretax accounting income for 2020 is $325,000. the tax rate for all years is 20%, and taxable income for 2020 is $405,000. Instructions a. Compute income taxes payable for 2020. b. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020. c. Prepare the income tax expense section of the income statement for 2020 beginning with the line "Income before income taxes." DT.L

Answer 1

Please find below table useful to compute desired results: -

А B i Beg. Deferred Tax Liability account 46000 2 Cumulative Temporary difference 350000 3 Pretax accounting income 525000 4 Tax rate =20/100 5 Taxable income 405000 6 7 Income Tax Payable =B5*B4 8 9 End. Deferred Tax Liability =B2*B4 10 Deferred Tax Expense for the Year =C9-B1 11 12 Account Titles and Explanation Debit Credit 13 Income Tax Expense C14+15| 14 Income Tax Payable =C7 15 Deferred Tax Liability =C10 (to record income tax expense. deferred income tax and income tax payable for the year) J=B3 Bandung Corporation Income Statement(Partial) 20 Income Before Income Taxes 21 Income Tax Expense - Current =C7 22 Income Tax Expense - Deferred =C10 23 24 Net Income(loss) =B21+B22 =C20-C23

End results would be as follows: -

1 2 3 4 5 Beg. Deferred Tax Liability account Cumulative Temporary difference Pretax accounting income Tax rate Taxable income B 46,000 350,000 525.000 20% 405,000 7 Income Tax Payable 81,000 8 9 End. Deferred Tax Liability 70,000 10 Deferred Tax Expense for the Year 24,000 11 12 Account Titles and Explanation Debit Credit 13 Income Tax Expense 105,000 Income Tax Payable 81,000 15 Deferred Tax Liability 24,000 (to record income tax expense. deferred income tax and income tax payable for the year) 14 Bandung Corporation Income Statement(Partial) 20 Income Before Income Taxes 21 Income Tax Expense - Current 81,000 22 Income Tax Expense - Deferred 24.000 525,000 23 105,000 420,000 24 Net Income(loss)