Question

Chec Shannon Polymers uses straight-line depreciation for financial reporting purposes for equipment costing $660,000 and with an expected useful life of four years and no residual value. Assume that, for tax purposes, the deduction is 40%, 30%, 20%, and 10% in those years. Pretax accounting income the first year the equipment was used was $760,000, which includes interest revenue of $18,000 from municipal governmental bonds. Other than the two described, there are no differences between accounting income and taxable income. The enacted tax rate is 25%. Prepare the journal entry to record income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet < 1 > Record the income tax expense. Note: Enter debits before credits. Transaction General Journal Debit Credit 1 Income tax expense Deferred tax liability Income taxes payable Pandant ലിയ ഹാൾ. View.carollam < Prev 4 of 14 -H HHH Next >

Answer 1

Solution:

Computation of Taxable Income and Income Tax and deferred tax Liability - Shannon Polymers

Particulars		Amount
Pre Tax Accounting Income		$760,000.00
Add: Depreciation as per books	$660,000/4	$165,000.00
Less: Depreciation as per income tax	$660,000*40%	$264,000.00
Less: Interest revenue on mucipal bonds		$18,000.00
Taxable Income		$643,000.00
Tax Rate		25%
Income Tax Liability		$160,750.00
Temporary difference resulting in future taxable amount		$99,000.00
Deferred Tax Liability		$24,750.00

Journal Entries - Shannon Polymers
Particulars	Debit	Credit
Income Tax Expense (760,000-18.000)*25%	$185,500.00
To Income Tax Payable		$160,750.00
To Deferred Tax Liability		$24,750.00
(Being income tax and deferred tax recorded for first year)