Question

The following information is available for Swifty Corporation for 2016 (its first year of operations). 1. Excess of tax depreciation over book depreciation, $41,200. This $41,200 difference will reverse equally over the years 2017–2020. 2. Deferral, for book purposes, of $18,700 of rent received in advance. The rent will be recognized in 2017. 3. Pretax financial income, $319,200. 4. Tax rate for all years, 30%.

Compute taxable income for 2016. Taxable income $ SHOW LIST OF ACCOUNTS

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (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 SHOW LIST OF ACCOUNTS

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $350,000. (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

Answer 1

(1) -- Compute taxable income for 2016.

Answer -

	Particulars	Calculation	Amount ($)
A.	Pretax financial income	Given in question	319200
B.	Excess of tax depreciation over book depreciation	Given in question	41200
C.	Rent received in advance	Given in question	18700
Taxable income		A - B + C	296700

.

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

Answer -

Account Titles and Explanation	Debit ($)	Credit ($)
Income tax expense [working note - (1)] Deferred tax asset [working note - (2)] Deferred tax liability [working note - (3)] Income tax payable [working note - (4)]	95760 5610 - -	- - 12360 89010

# Working Notes -

Working Note	Particulars	Calculation	Amount
1.	Income tax expense	Pretax financial income * Tax rate = $319200 * 30%	95760
2.	Deferred tax asset	Rent received in advance * Tax rate = $18700 * 30%	5610
3.	Deferred tax liability	Excess of tax depreciation over book depreciation * Tax rate = $41200 * 30%	12360
4.	Income tax payable	Taxable income * Tax rate = $296700 * 30%	89010

.

(3) -- Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $350000.

Answer -

Account Titles and Explanation	Debit ($)	Credit ($)
Income tax expense [Balancing figure] Deferred tax liability [$41200 / 4 years) * 30%] Deferred tax asset [$18700 * 30%] Income tax payable [$350000 * 30%]	107520 3090 - -	- - 5610 105000