Question

Vaughn Inc., in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2019.

		Book Basis		Tax Basis
Equipment (net)		$413,000		$356,900
Estimated warranty liability		$198,000		$-0-

It is estimated that the warranty liability will be settled in 2020. The difference in equipment (net) will result in taxable amounts of $18,200 in 2020, $28,400 in 2021, and $9,500 in 2022. The company has taxable income of $514,000 in 2019. As of the beginning of 2019, the enacted tax rate is 34% for 2019–2021, and 30% for 2022. Vaughn expects to report taxable income through 2022.

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019. (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

Indicate how deferred income taxes will be reported on the balance sheet at the end of 2019.

Answer 1

Answer:

Computation of Deferred tax Liabilities and Deferred tax assets - Vaughn Inc.
Particulars	2020	2021	2022	Total
Temporary difference giving rise to future taxable amount	$18200	$28400	$9500
Enacted tax rate	34%	34%	30%
Deferred tax liability	$6188	$9656	$2850	$18694
Temporary difference giving rise to future deductible amount	$198000	$0.00	$0.00
Deferred tax assets	$67320	$0.00	$0.00	$67320

Journal Entries - Vaughn Inc.
Particulars	Debit	Credit
Income tax expense Dr	$126134
Deferred tax assets Dr	$67320
To Income tax payable ($514000*34%)		$174760
To Deferred tax liability		$18694
(To record income tax and deferred tax)

Balance Sheet (Partial)
Vaughn Inc.
As on December 31, 2019
Liabilities	Amount	Assets	Amount
Non Current Liabilities:
Deferred Tax Liability	$12506
Current Liability:		Current Assets
Deferred tax Liability	$6188	Deferred Tax Assets	$67320