Question

E19.2 (LO 1,2) (Two Differences, No Beginning Deferred Taxes, Tracked through 2 Years) following information is available for Wenger Corporation for 2019 (its first year of operations). The 1. Excess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse equally over the years 2020-2023 2. Deferral, for book purposes, of $20,000 of rent received in advance. The rent will be recognized in 2020. 3. Pretax financial income, $300,000. 4. Tax rate for all years, 20%. Instructions a. Compute taxable income for 2019. b. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019. c. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming taxable income of $325,000.

Answer 1

1
Pretax financial income	300000
Less: Excess Depreciation	(40000)
Add: Rent received in advance	20000
Taxable income	280000
2
Account Titles and Explanation	Debit	Credit
Income tax expense	60000
Deferred tax asset	4000		=20000*20%
Deferred tax liability		8000	=40000*20%
Income taxes payable		56000	=280000*20%
3
Account Titles and Explanation	Debit	Credit
Income tax expense	67000
Deferred tax liability	2000		=8000/4
Deferred tax asset		4000
Income taxes payable		65000	=325000*20%