Question

The following facts relate to Waterway Corporation.

1.		Deferred tax liability, January 1, 2017, $42,800.
2.		Deferred tax asset, January 1, 2017, $0.
3.		Taxable income for 2017, $101,650.
4.		Pretax financial income for 2017, $214,000.
5.		Cumulative temporary difference at December 31, 2017, giving rise to future taxable amounts, $256,800.
6.		Cumulative temporary difference at December 31, 2017, giving rise to future deductible amounts, $37,450.
7.		Tax rate for all years, 40%.
8.		The company is expected to operate profitably in the future.

Compute income taxes payable for 2017. (Round answer to the nearest dollar amount, e.g. $1,525.)

Income taxes payable

$

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List of Accounts

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (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 0 for the amounts. Round answers to the nearest dollar amount, e.g. $1,525.)

Account Titles and Explanation	Debit	Credit

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List of Accounts

Prepare the income tax expense section of the income statement for 2017, beginning with the line “Income before income taxes.” (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Waterway Corporation Income Statement (Partial)                                                                       December 31, 2017For the Year Ended December 31, 2017For the Quarter Ended December 31, 2017
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues	$
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$

Answer 1

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Part 1 Income Tax payable
Taxable Income	a	$101,650
Tax Rate	b	40%
Income Tax Payable	a*b	$ 40,660
Part 2
Accounts	Debit	Credit
Income Tax Expense (Plug in)	$               85,600
Deferred Tax Assets ($37,450*40%)	$               14,980
Income Tax Payable		$ 40,660
Deferred Tax Liability ($256,800*40%)-$42,800		$ 59,920
Part 3
Income before Income Tax			$214,000
Income Tax Expense:
Current		$ 40,660
Deferred	$59,920-$14,980	$ 44,940	$ -85,600
Net Income			$128,400