Question

Exercise 19-2 The following information is available for Tamarisk Corporation for 2016 (its first year of operations). 1. Excess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse equally over the years 2017–2020. 2. Deferral, for book purposes, of $21,500 of rent received in advance. The rent will be recognized in 2017. 3. Pretax financial income, $315,900. 4. Tax rate for all years, 40%.

Compute taxable income for 2016. Taxable income $

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $303,600. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

Solution:

Tamarisk Corporation
Schedule of pretax financial income and taxable income for 2016
Particulars	Amount
Pretax financial Income	$315,900.00
Temorary differences:
Excess of tax depreciation over book	-$40,000.00
Add: Rent received in advance	$21,500.00
Taxable Income	$297,400.00
Income tax (40%)	$118,960.00

Tamarisk corporation
Journal Entries
Date	Particulars	Debit	Credit
31-Dec-16	Income tax expense Dr	$126,360.00
	Deferred Tax Assets Dr ($21,500*40%)	$8,600.00
	To Income Tax Payable		$118,960.00
	To Deferred tax liability ($40,000*40%)		$16,000.00
	(Being current income tax and deferred taxes)
31-Dec-17	Income tax expense Dr	$126,040.00
	Deferred Tax liability Dr ($10,000*40%)	$4,000.00
	To Income Tax Payable ($303,600*40%)		$121,440.00
	To Deferred tax assets		$8,600.00
	(Being current income tax and reversal of deferred tax recorded)