In: Accounting
Dixon Development began operations in December 2018. When lots for industrial development are sold, Dixon recognizes income for financial reporting purposes in the year of the sale. For some lots, Dixon recognizes income for tax purposes when collected. Income recognized for financial reporting purposes in 2018 for lots sold this way was $16 million, which will be collected over the next three years. Scheduled collections for 2019–2021 are as follows:
2019 | $ | 4 | million |
2020 | 7 | million | |
2021 | 5 | million | |
$ | 16 | million | |
Pretax accounting income for 2018 was $28 million. The enacted tax
rate is 35%.
Required:
1. Assuming no differences between accounting
income and taxable income other than those described above, prepare
the journal entry to record income taxes in 2018.
2. Suppose a new tax law, revising the tax rate
from 35% to 30%, beginning in 2020, is enacted in 2019, when pretax
accounting income was $26 million. No 2019 lot sales qualified for
the special tax treatment. Prepare the appropriate journal entry to
record income taxes in 2019.
3. If the new tax rate had not been enacted, what
would have been the appropriate balance in the deferred tax
liability account at the end of 2019?
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Part -1 | ||||
Pretax Accounting Income | $ 28.00 | million | ||
Less: Sales Revenue from Sale | $ 16.00 | million | ||
Add: Collection from Sale | $ - | million | ||
Taxable Income | $ 12.00 | |||
Account | Debit | Credit | ||
Income Tax Expense | $ 9.80 | 28*35% | ||
Deferred Tax Liability | $ 5.60 | 16*35% | ||
Income Tax Payable | $ 4.20 | 12*35% | ||
Part -2 | ||||
Pretax Accounting Income | $ 26.00 | million | ||
Less: Sales Revenue from Sale | $ - | million | ||
Add: Collection from Sale | $ 4.00 | million | ||
Taxable Income | $ 30.00 | |||
Income Tax Expense | $ 8.50 | |||
Deferred Tax Liability | $ 2.00 | |||
Income Tax Payable | $ 10.50 | 30*35% | ||
Deferred Tax Liability | ||||
2014 | $ 2.00 | 2013 | $ 5.60 | |
Ending | $ 3.60 | |||
12*30% | ||||
Part -3 | ||||
Deferred Tax Liability | ||||
2014 | $ 1.40 | 2013 | $ 5.60 | |
Ending | $ 4.20 | |||
12*35% | ||||