Question

Rangers, Inc. reported pretax financial income of $500,000 for the calendar year 2015. Included in the other income section of the income statement was $75,000 of interest revenue from municipal bonds held by the company. The income statement also included depreciation expense of $300,000. The income tax return reported $450,000 as MACRS depreciation on the machine. The enacted tax rate is 30% for 2015 and future years. Prepare the journal entry or entries necessary to record income taxes for 2015.

Answer 1

Income tax as per Rangers Inc. = ($500000 - exempt income $75000) * 30% = $127,500

Income tax as per Income tax return = ($500000 - $75000 - difference in depreciation $150000) * 30% = $82500

So, the Defferred tax liability = $45000

Journal Entry:

Debit Income Tax Expense $127500

Credit Defferred tax liability $45000

Credit Income Tax Payable $82500

(being defferred tax Liability booked for 2015)

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