Question

Taxable income and pretax financial income would be identical for Crane Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared.

Taxable income		2016			2017			2018
Excess of revenues over expenses (excluding two temporary differences)		$154,000			$215,000			$93,500
Installment gross profit collected		8,500			8,500			8,500
Expenditures for warranties		(5,500	)		(5,500	)		(5,500	)
Taxable income		$157,000			$218,000			$96,500
Pretax financial income		2016			2017			2018
Excess of revenues over expenses (excluding two temporary differences)		$154,000			$215,000			$93,500
Installment gross profit recognized		25,500			0			0
Estimated cost of warranties		(16,500	)		0			0
Income before taxes		$163,000			$215,000			$93,500

The tax rates in effect are 2016, 40%; 2017 and 2018, 45%. All tax rates were enacted into law on January 1, 2016. No deferred income taxes existed at the beginning of 2016. Taxable income is expected in all future years.

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016, 2017, and 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.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2016
Dec. 31, 2017
Dec. 31, 2018

Answer 1

Solution:

Journal Entries - Crane Company
Year	Particulars	Debit	Credit
2017	Income Tax Expense Dr	$65,500.00
	Deferred tax assets Dr ($11,000*45%)	$4,950.00
	To Income tax Payable ($157,000*40%)		$62,800.00
	To Deferred tax liability ($17,000*45%)		$7,650.00
	(To record income tax and deferred tax for 2017)
2018	Income Tax Expense Dr	$96,750.00
	Deferred tax liability Dr ($8,500*45%)	$3,825.00
	To Income tax Payable ($218,000*45%)		$98,100.00
	To Deferred tax Assets ($5,500*45%)		$2,475.00
	(To record income tax and deferred tax for 2018)
2019	Income Tax Expense Dr	$42,075.00
	Deferred tax liability Dr ($8,500*45%)	$3,825.00
	To Income tax Payable ($96,500*45%)		$43,425.00
	To Deferred tax Assets ($5,500*45%)		$2,475.00
	(To record income tax and deferred tax for 2019)