Question

Taxable income and pretax financial income would be identical for Bramble Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared. 2016 2017 2018 Taxable income Excess of revenues over expenses (excluding two temporary differences) Installment gross profit collected Expenditures for warranties Taxable income $83,200 7,300 $149,000 7,300 (5,000) $151,300 $218,000 7,300 (5,000) $220,300 (5,000) $85,500 2016 2017 2018 $149,000 $83,200 Pretax financial income Excess of revenues over expenses (excluding two temporary differences) Installment gross profit recognized Estimated cost of warranties Income before taxes $218,000 0 21,900 0 (15,000 ) $155,900 $218,000 $83,200 The tax rates in effect are 2016, 40%; 2017 and 2018, 45%. All tax rates were enacted into law on January 1, 2016. No deferred income taxes existed at the beginning of 2016. Taxable income is expected in all future years. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016, 2017, and 2018. (Credit account titles are automatically indented when amount is entered. Do not Indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts.)

Answer 1

Solution:

Bramble Co.
Journal Entries
Date	Particulars	Debit	Credit
31-Dec-16	Income tax expense Dr	$62,590.00
	Deferred Tax Assets Dr ($10,000*45%)	$4,500.00
	To Income Tax Payable		$60,520.00
	To Deferred tax liability ($14,600*45%)		$6,570.00
	(Being current income tax and deferred taxes)
31-Dec-17	Income tax expense Dr	$98,100.00
	Deferred Tax Liability Dr ($7,300*45%)	$3,285.00
	To Income Tax Payable		$99,135.00
	To Deferred tax Assets ($5,000*45%)		$2,250.00
	(Being current income tax and deferred taxes)
31-Dec-18	Income tax expense Dr	$37,440.00
	Deferred Tax Liability Dr ($7,300*45%)	$3,285.00
	To Income Tax Payable		$38,475.00
	To Deferred tax Assets ($5,000*45%)		$2,250.00
	(Being current income tax and deferred taxes)