Question

Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2013 through 2016 except for differences in depreciation on an operational asset. The asset cost $160,000 and is depreciated for income tax purposes in the following amounts:

2013	$	52,800
2014		70,400
2015		24,000
2016		12,800

The operational asset has a four-year life and no residual value. The straight-line method is used for financial reporting purposes.

Income amounts before depreciation expense and income taxes for each of the four years were as follows.

	2013			2014			2015			2016
Accounting income before taxes and depreciation	$	90,000		$	110,000		$	100,000		$	100,000

Assume the average and marginal income tax rate for 2013 and 2014 was 30%; however, during 2014 tax legislation was passed to raise the tax rate to 40% beginning in 2015. The 40% rate remained in effect through the years 2015 and 2016. Both the accounting and income tax periods end December 31.

Required:

Prepare the journal entries to record income taxes for the years 2013 through 2016. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

Answer 1

ANSWER:-

Year	Books	Depre- Books	Book- Tax	Taxation	Depre- Taxation	Taxation- Tax	Deferred tax Assets
2013	90000	40000	15000	90000	52800	11160	-3840
2014	110000	40000	21000	110000	70400	11880	-9120
2015	100000	40000	24000	100000	24000	30400	6400
2016	100000	40000	24000	100000	12800	34880	10880
							4320

Journal Entries:
Date	Accounts Titles	Debit $	Credit $
Dec 31 2013	Tax expenses	15000
	Deferred tax liability		3840
	Tax payable		11160
Dec 31 2014	Tax expenses	21000
	Deferred tax liability		9120
	Tax payable		11880
Dec 31 2015	Tax expenses	24000
	Deferred tax liability	6400
	Tax payable		30400
Dec 31 2016	Tax expenses	24000
	Deferred tax liability	6560
	Deferred tax assets	4320
	Tax payable		34880

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