Question

Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2017–2020 are as follows:

	Service Revenue			Collections			Pretax Accounting Income
2017	$	616,000		$	581,000		$	140,000
2018		700,000			710,000			205,000
2019		665,000			645,000			175,000
2020		650,000			675,000			155,000

There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is 40%.

(Hint: You may find it helpful to prepare a schedule that shows the balances in service revenue receivable at December 31, 2017–2020.)

Journal entry worksheet:

Record 2018 income taxes.

Record 2019 income taxes.

Record 2020 income taxes.

Answer 1

ALSUP Consulting
Year 2017
Pretax accounting income	$1,40,000
Less: Service Revenue	$6,16,000
Add: Cash Collection	$5,81,000
Taxable Income	$1,05,000

Journal Entry- 2017
Particular	Amount (Dr)	Amount (Cr)
Tax Expense	$56,000
Deferred Tax Liability=($616000-581000)*40%		$14,000
To Tax Payable($105000*40%)		$42,000

ALSUP Consulting
Year 2018
Pretax accounting income	$2,05,000
Less: Service Revenue	$7,00,000
Add: Cash Collection	$7,10,000
Taxable Income	$2,15,000

Journal Entry- 2018
Particular	Amount (Dr)	Amount (Cr)
Tax Expense	$82,000
Deferred Tax Liability($710000-$700000)*40%	$4,000
To Tax Payable($215000*40%)		$86,000

ALSUP Consulting
Year 2019
Pretax accounting income	$1,75,000
Less: Service Revenue	$6,65,000
Add: Cash Collection	$6,45,000
Taxable Income	$1,55,000

Journal Entry- 2019
Particular	Amount (Dr)	Amount (Cr)
Tax Expense	$70,000
To Deferred Tax Liability($665000-$645000)*40%		$8,000
To Tax Payable($155000*40%)		$62,000

ALSUP Consulting
Year 2020
Pretax accounting income	$1,55,000
Less: Service Revenue	$6,50,000
Add: Cash Collection	$6,75,000
Taxable Income	$1,80,000

Journal Entry- 2020
Particular	Amount (Dr)	Amount (Cr)
Tax Expense	$62,000
Deferred Tax Liability($650000-$675000)*40%	$10,000
To Tax Payable($180000*40%)		$72,000