Question

At the end of 2016, Pearl Company has $181,100 of cumulative temporary differences that will result in reporting the following future taxable amounts.

2017		$59,800
2018		51,100
2019		39,000
2020		31,200
		$181,100

Tax rates enacted as of the beginning of 2015 are:

2015 and 2016		40	%
2017 and 2018		30	%
2019 and later		25	%

Pearl’s taxable income for 2016 is $316,200. Taxable income is expected in all future years.

(a) Prepare the journal entry for Pearl to record income taxes payable, deferred income taxes, and income tax expense for 2016, assuming that there were no deferred taxes at the end of 2015. (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
Income Tax Expense	???
Income Tax Payable		???
Deferred Tax Liability		???

(b) Prepare the journal entry for Pearl to record income taxes payable, deferred income taxes, and income tax expense for 2016, assuming that there was a balance of $21,700 in a Deferred Tax Liability account at the end of 2015. (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
Income Tax Expense	???
Income Tax Payable		???
Deferred Tax Liability		???

Answer 1

Given data,

Taxable Income = $316200

Tax payable = $316200 × 40% = $126480

Deferred tax liability :

Year	2017	2018	2019	2020	total
Amount	$59800	$51100	$39000	$31200	$181100
Tax rate	30%	30%	25%	25%
Deferred tax liability	$17940	$15330	$9750	$7800	$50820

Total deferred tax liability = $50820   

Part a

Preparation of journal entry assuming that there was no opening deferred tax liability:

Journal	Debit	Credit
Tax expense	$177300
To tax liability		$126480
To deferred tax liability		$50820

Part b)

Deferred tax liability at the end of 2016	$50820
Deferred tax liability at the begining of 2017	($21700)
Deferred tax expense for 2016	$29120
Current tax liability	$126480
Income tax expense	$155600

Journal	debit	credit
Income tax expense	$155600
To income tax payable		$126480
To deferred tax liability		$29120

I have given complete and detailed explanation to your probelm, in case of any query you can comment and

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