Question

Taxable income and pretax financial income would be identical for Bonita 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) Installment gross profit collected $154,000 $191,000 $88,100 8,500 8,500 8.500 Expenditures for warranties (4,500) $158,000 (4,500) $195,000 (4,500) $92,100 Taxable income Pretax financial income 2016 2017 2018 Excess of revenues over expenses (excluding two temporary differences) Installment gross pront recognized $154,000 $191,000 $88,100 25,500 Estimated cost of warranties (13,500) $166,000 Income before taxes $191,000 588 100 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 accountitles and enter for the amounts.)

Answer 1

Solution:

Journal Entries - Bonita Company
Date	Particulars	Debit	Credit
31-Dec-16	Income Tax Expense Dr	$66,800.00
	Deferred tax assets Dr ($9,000*45%)	$4,050.00
	To Income tax Payable ($158,000*40%)		$63,200.00
	To Deferred tax liability ($17,000*45%)		$7,650.00
	(To record income tax and deferred tax for 2016)
31-Dec-17	Income Tax Expense Dr	$85,950.00
	Deferred tax Liability Dr ($8,500*45%)	$3,825.00
	To Income tax Payable ($195,000*45%)		$87,750.00
	To Deferred tax Asset ($4,500*45%)		$2,025.00
	(To record income tax and deferred tax for 2017)
31-Dec-18	Income Tax Expense Dr	$39,645.00
	Deferred tax Liability Dr ($8,500*45%)	$3,825.00
	To Income tax Payable ($92,100*45%)		$41,445.00
	To Deferred tax Asset ($4,500*45%)		$2,025.00
	(To record income tax and deferred tax for 2018)