Question

E19.1 (LO1,2) (One temporary difference, Future Taxable Amounts, One Rate, No Beginning Differed Taxes)   South Carolina Corporation has one temporary difference at the end of 2020 that will reverse and cause taxable amounts of $55,000 in 2021, $60,000 in 2022, and $65,000 in 2023. South Carolina’s pretax financial income for 2020 is $300,000, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2020.

Instructions

1. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020 (Please explain how this is found? I'm completely lost on this)

Answer 1

Account Titles and explanation	Debit ($)	Credit ($)
Income Tax Expense (300,000*30%)	90000
Income tax payable		36000
Deferred tax liability		54000
(To record the income tax expense, deferred taxes and income tax payable)

Working Note:

Deferred Tax liability
	2021	2022	2023	Total
Future Taxable Amount (A)	55000	60000	65000	180000
Tax Rate (B)	30%	30%	30%
Deferred Tax Liability (A*B)	16500	18000	19500	54000

Pre-tax financial income	3,00,000
Less: Future taxable amount	-180000
Taxable income (A)	1,20,000
Tax Rate (B)	30%
Income tax payable (A*B)	36000