Question

The following information pertains to PCX Company:

Temporary differences for the year 2016 are summarized below.

Expenses deducted in the tax return, but not included in the income statement:

Depreciation: $60,000

Prepaid Expense: $8,000

Expenses reported in the income statement, but not deducted in the tax return:

Warranty Expense: $9,000

No temporary differences existed at the beginning of 2016.

Pretax accounting income was $67,000

The tax rate is 30%.

Required-

Prepare the journal entry to record the tax provision for 2016.

Account	Debit	Credit

Answer 1

	Taxable income		Amount
a	pre tax book income		67,000
	Add:
	Warranty expense	9,000
	Less:
	Depreciation	60,000
	Prepaid expense	8,000
b	Net favourable adjustment		59,000
c= a+b	Taxable income		8,000
d	Tax rate		30%
e= c*d	Current tax expense		2,400
f= b*d	Deferred tax expense		17,700
	Account	Debit	Credit
	Current tax expesne	8,000
	Deferred tax expense	17,700
	Current tax payable		8,000
	Deferred tax payable		17,700