Question

Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2020–2023 are as follows:

	Service Revenue			Collections			Pretax Accounting Income
2020	$	716,000		$	676,000		$	242,000
2021		806,000			834,000			316,000
2022		766,000			758,000			284,000
2023		772,000			776,000			256,000

There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is 25%.

(Hint: You will find it helpful to prepare a schedule that shows the balances in service revenue receivable at December 31, 2020–2023.)

Required:
1. to 3. Prepare the appropriate journal entries to record Alsup's 2021 income taxes, 2022 income taxes and 2023 income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

Answer 1

		Year 2020
		Pretax accounting income	242,000
		Less: Service Revenue	(716,000)
		Add: Cash Collection	676,000
		Taxable Income	202,000
		Journal Entry
		Particular	Amount (Dr)	Amount (Cr)
		Tax Expense	60,500
		To Deferred Tax Liability=($716000-$676000)*25%		10,000
		To Tax Payable($202000*25%)		50,500
		Year 2021
		Pretax accounting income	316,000
		Less: Service Revenue	(806,000)
		Add: Cash Collection	834,000
		Taxable Income	344,000
		Journal Entry
		Particular	Amount (Dr)	Amount (Cr)
		Tax Expense	79,000
		Deferred Tax Liability=($834000-$806000)*25%	7,000
		To Tax Payable($344000*25%)		86,000
		Year 2022
		Pretax accounting income	284,000
		Less: Service Revenue	(766,000)
		Add: Cash Collection	758,000
		Taxable Income	276,000
		Journal Entry
		Particular	Amount (Dr)	Amount (Cr)
		Tax Expense	71,000
		To Deferred Tax Liability=($766000-$758000)*25%		2,000
		To Tax Payable($276000*25%)		69,000
		Year 2023
		Pretax accounting income	256,000
		Less: Service Revenue	(772,000)
		Add: Cash Collection	776,000
		Taxable Income	260,000
		Journal Entry
		Particular	Amount (Dr)	Amount (Cr)
		Tax Expense	64,000
		Deferred Tax Liability=($776000-$772000)*25%	1,000
		To Tax Payable($260000*25%)		65,000