Question

At the beginning of 2017, Newton Corporation had a Deferred Tax Liability account with a beginning balance of $23,500. This was due to $55,600 of temporary differences that will result in future taxable amounts.

At the end of 2017, Newton Corporation had $184,000 of future taxable amounts.

Newton’s taxable income for 2017 is $330,000. Taxable income is expected in all future years.

The enacted tax rate for 2016 and all future years is 40%

a. Prepare the journal entry for Newton to record income taxes payable, deferred income taxes, and income tax expense for 2017.

b. What was Newton’s Book Income Before Taxes assuming they only had the above temporary differences and had a fine in 2017 from the government of $27,000.

Answer 1

Solution a:

Journal Entries - Newton Corporation
Date	Particulars	Debit	Credit
31-Dec-17	Income tax expense Dr	$182,100.00
	To Income taxes payable ($330,000*40%)		$132,000.00
	To Deferred tax liability ($184,000*40% - $23,500)		$50,100.00
	(To record income tax expense and deferred tax for 2017)

Solution b:

Newton’s Book Income Before Taxes = Taxable income - Fine in 2017 + Temporary difference arises in 2017

= $330,000 - $27,000 + ($184,000 - $55,600)

= $431,400