Question

At the end of 2019, Carla Company has $176,400 of cumulative temporary differences that will result in reporting the following future taxable amounts.

2020		$58,000
2021		49,400
2022		40,100
2023		28,900
		$176,400

Tax rates enacted as of the beginning of 2018 are:

2018 and 2019		40	%
2020 and 2021		30	%
2022 and later		25	%

Carla’s taxable income for 2019 is $306,100. Taxable income is expected in all future years.

(a) Prepare the journal entry for Carla to record income taxes payable, deferred income taxes, and income tax expense for 2019, assuming that there were no deferred taxes at the end of 2018. (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.)

(b) Prepare the journal entry for Carla to record income taxes payable, deferred income taxes, and income tax expense for 2019, assuming that there was a balance of $21,400 in a Deferred Tax Liability account at the end of 2018. (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.)

Answer 1

Answer:

Current year tax	306100*40%	122440
Tax on temporary differences
2020	58000	30%	$17400
2021	49400	30%	$14820
2022	40100	25%	$10025
2023	28900	25%	$7225
Total deferred tax liabilities			$49470
Account titles and Explanation	Debit	Credit
Income tax expense	$171,910
Income taxes payable		$122,440
Deferred tax liability		$49,470
Since the company has cumulative temporary differences which are future taxable and so company will have to create deferred tax liability
b
Account titles and Explanation	Debit	Credit
Income tax expense	$143,840
Income taxes payable		$122,440
Deferred tax liability		$21,400
Company has $21,400 in deferred tax liability already and so the deferred tax liability to be recorded would reduce by $21,400