Question

Exercise 19-5

The following facts relate to Pearl Corporation.

1.		Deferred tax liability, January 1, 2017, $45,600.
2.		Deferred tax asset, January 1, 2017, $0.
3.		Taxable income for 2017, $108,300.
4.		Pretax financial income for 2017, $228,000.
5.		Cumulative temporary difference at December 31, 2017, giving rise to future taxable amounts, $273,600.
6.		Cumulative temporary difference at December 31, 2017, giving rise to future deductible amounts, $39,900.
7.		Tax rate for all years, 40%.
8.		The company is expected to operate profitably in the future.

(A) Compute income taxes payable for 2017.

Income TAxes Payable $_______________

(B) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (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. Round answers to the nearest dollar amount, e.g. $1,525.)

Account Titles and Explanation	Debit	Credit

Allowance to Reduce Deferred Tax Asset to Expected Realizable Value
Benefit Due to Loss Carryback
Benefit Due to Loss Carryforward
Deferred Tax Asset
Deferred Tax Liability
Income Tax Expense
Income Tax Payable
Income Tax Refund Receivable
No Entry

(C)Prepare the income tax expense section of the income statement for 2017, beginning with the line “Income before income taxes.” (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

	Pearl Corporation
	Income Statement (Partial)
????		$
????
???	$
??	$
		$
???		$

Answer 1

a
Taxable income	108300
X Tax rate	40%
Income taxes payable	43320
b
	Debit	Credit
Income tax expense	91200
Deferred Tax Asset	15960		=39900*40%
Income Tax Payable		43320
Deferred Tax Liability		63840	=(273600*40%)-45600
c
Pearl Corporation
Income Statement (Partial)
Income before income taxes		228000
Income tax expense:
Current	43320
Deferred	47880
		91200
Net income		136800