Question

Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2021 through 2024 except for differences in depreciation on an operational asset. The asset cost $260,000 and is depreciated for income tax purposes in the following amounts:

2021	$	85,800
2022		114,400
2023		39,000
2024		20,800

The operational asset has a four-year life and no residual value. The straight-line method is used for financial reporting purposes.

Income amounts before depreciation expense and income taxes for each of the four years were as follows:

	2021			2022			2023			2024
Accounting income before taxes and depreciation	$	140,000		$	160,000		$	150,000		$	150,000

Assume the income tax rate for 2021 and 2022 was 30%; however, during 2022, tax legislation was passed to raise the tax rate to 40% beginning in 2023. The 40% rate remained in effect through the years 2023 and 2024. Both the accounting and income tax periods end December 31.

Required:
Prepare the journal entries to record income taxes for the years 2021 through 2024. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Solution:

Computation of Taxable Income and Income Tax Payable
Particulars	2021	2022	2023	2024
Accounting income before taxes and depreciation	$140,000.00	$160,000.00	$150,000.00	$150,000.00
Less: Depreciation as per Income tax	$85,800.00	$114,400.00	$39,000.00	$20,800.00
Taxable Income	$54,200.00	$45,600.00	$111,000.00	$129,200.00
Income Tax Payable	$16,260.00	$13,680.00	$44,400.00	$51,680.00

Computation of Deferred Tax
Particulars	2021	2022	2023	2024
Depreciation as per Income Tax	$85,800.00	$114,400.00	$39,000.00	$20,800.00
Depreciation as per Books	$65,000.00	$65,000.00	$65,000.00	$65,000.00
Taxable Temporary differences	$20,800.00	$49,400.00	$0.00	$0.00
Reversible Temporary differences			$26,000.00	$44,200.00
Deferred tax liability to be recorded 2021 - $20,800*30% 2022 - ($49,400*40% + $20,800*10%)	$6,240.00	$21,840.00	$0.00	$0.00
Reversal of Deferred tax liability			$10,400.00	$17,680.00

Journal Entries - Zekany Corporation
Year	Particulars	Debit	Credit
2021	Income Tax Expense Dr	$22,500.00
	To Income tax Payable		$16,260.00
	To Deferred tax liability		$6,240.00
	(To record income tax and deferred tax)
2022	Income Tax Expense Dr	$35,520.00
	To Income tax Payable		$13,680.00
	To Deferred tax liability		$21,840.00
	(To record income tax and deferred tax)
2023	Income Tax Expense Dr	$34,000.00
	Deferred tax liability Dr	$10,400.00
	To Income tax Payable		$44,400.00
	(To record income tax and deferred tax)
2024	Income Tax Expense Dr	$34,000.00
	Deferred tax liability Dr	$17,680.00
	To Income tax Payable		$51,680.00
	(To record income tax and deferred tax)