At the end of 2016, Teal 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 | % |
Teal’s taxable income for 2016 is $316,200. Taxable income is
expected in all future years.
(a) Prepare the journal entry for Teal 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 |
(b) Prepare the journal entry for Teal 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 |
Solution a:
Required balance in deferred tax liability at the end of 2016 = ($59,800 + $51,100) *30% + ($39,000 + $31,200)*25%
= $33,270 + $17,550 = $50,820
Journal Entries - Teal Company | |||
Date | Particulars | Debit | Credit |
31-Dec-16 | Income tax expense Dr | $177,300.00 | |
To Income taxes payable ($316,200*40%) | $126,480.00 | ||
To Deferred tax liability | $50,820.00 | ||
(To record income tax expense for the year) |
Solution b:
Journal Entries - Teal Company | |||
Date | Particulars | Debit | Credit |
31-Dec-16 | Income tax expense Dr | $155,600.00 | |
To Income taxes payable ($316,200*40%) | $126,480.00 | ||
To Deferred tax liability ($50,820 - $21,700) | $29,120.00 | ||
(To record income tax expense for the year) |
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