Lance Lawn Services reports warranty expense by estimating the
amount that eventually will be paid to satisfy warranties on its
product sales. For tax purposes, the expense is deducted when the
cost is incurred. At December 31, 2018, Lance has a warranty
liability of $2 million and taxable income of $80 million. At
December 31, 2017, Lance reported a deferred tax asset of $837,000
related to this difference in reporting warranties, its only
temporary difference. The enacted tax rate is 40% each year.
Required:
Prepare the appropriate journal entry to record Lance’s income tax
provision for 2018.
RECORD 2018 INCOME TAXES
ANSWER
Debit | Credit | ||
Income tax expense | 32,037,000 | ||
Deferred tax asset | 37,000 | =837,000 -(2,000,000*40%) | |
Income tax payable | 32,000,000 | =80,000,000*40% | |
To Record 2018 income taxes. |
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Lance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to...
Lance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when the cost is incurred. At December 31, 2018, Lance has a warranty liability of $2 million and taxable income of $75 million. At December 31, 2017, Lance reported a deferred tax asset of $835,000 related to this difference in reporting warranties, its only temporary difference. The enacted tax rate is...
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