Question

The pretax financial income of Sweet Company differs from its taxable income throughout each of 4 years as follows.

Year		Pretax Financial Income		Taxable Income		Tax Rate
2020		$277,000		$184,000		35	%
2021		291,000		233,000		20	%
2022		336,000		272,000		20	%
2023		402,000		560,000		20	%

Pretax financial income for each year includes a nondeductible expense of $32,900 (never deductible for tax purposes). The remainder of the difference between pretax financial income and taxable income in each period is due to one depreciation temporary difference. No deferred income taxes existed at the beginning of 2020.

Part 1

Prepare journal entries to record income taxes in all 4 years. Assume that the change in the tax rate to 20% was not enacted until the beginning of 2021. (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.)

Date	Account Titles and Explanation	Debit	Credit
2020
2021
	(To record the adjustment for the decrease in the enacted tax rate.)
	(To record income taxes for 2021.)
2022
2023

Answer 1

Answer
Explanation :
Computation of taxable/Reversible temporary differences and Deferred tax liability
Particulars	2017	$           2,018	$           2,019	2020
Pre tax financial income	$     2,77,000	$      2,91,000	$      3,36,000	$      4,02,000
Add: Non deductible expense	$        32,900	$         32,900	$         32,900	$         32,900
Less: Taxable income	$     1,84,000	$      2,33,000	$      2,72,000	$      5,60,000
Taxable / (Deductible) Temporary differences	$     1,25,900	$         90,900	$         96,900	$     -1,25,100
Tax rate	35%	$                  0	$                  0	20%
Deferred tax liability	$        44,065	$         18,180	$         19,380	$                 -
Reversal of deferred tax liability				$        -25,020

Journal Entry
Date	Account titles and explanation	Debit	Credit
2020	Income tax expense	$      1,08,465
	To Income tax payable ($184,000*35%)		$         64,400
	To Deferred tax liability		$         44,065
	(To record income tax and deferred tax for the year)
2021	Income tax expense Dr	$         64,780
	To Income tax payable ($233,000*20%)		$         46,600
	To Deferred tax liability		$         18,180
	(To record income tax and deferred tax for the year)
2022	Income tax expense Dr	$         73,780
	To Income tax payable ($272,000*20%)		$         54,400
	To Deferred tax liability		$         19,380
	(To record income tax and deferred tax for the year)
2023	Income tax expense Dr	$         86,980
	Deferred tax liability Dr	$         25,020
	To Income tax payable ($560,000*20%)		$      1,12,000
	(To record income tax and deferred tax for the year)