Question

Swifty Corporation recorded warranty accruals as at December 31, 2017 in the amount of $153,300. This reversing difference will cause deductible amounts of $50,700 in 2018, $36,800 in 2019, and $65,800 in 2020. Swifty’s accounting income for 2017 is $141,000 and the tax rate is 26% for all years. There are no deferred tax accounts at the beginning of 2017.

1- Calculate the deferred tax balance at December 31, 2017.

Deferred Tax (asset o liability) $__________

2- Calculate taxable income and current income tax payable for 2017.

Taxable income $__________

Income tax payable $_____________

3- Prepare the journal entries to record income taxes for 2017. (Credit account titles are automatically indented when the 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.)

Year

Account Titles and Explanation

Debit

Credit

a) 2017 (2 entries only)

(To record current taxes.)

b) 2017 (2 entries only)

(To record deferred income taxes)

4- Prepare the income tax expense section of the income statement for 2017, beginning with the line “Income before income tax.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Swifty Inc.

(Partial) Income Statement

Answer 1

Solution 1 & 2:

Computation of taxable income, Current tax payable and deferred tax Assets - Swifty Corporation For 2017
Particulars	Amount
Accounting income	$141,000.00
Add: Warranty accruals	$153,300.00
Taxable Income	$294,300.00
Tax rate	26%
Income tax payable	$76,518.00
Deferred tax assets ($153,300*26%)	$39,858.00

Solution 3:

Journal Entries - Swifty Corporation
Year	Account Title and Explanation	Debit	Credit
2017	Income tax expense Dr	$76,518.00
	To Income tax payable		$76,518.00
	(To record current taxes)
2017	Deferred tax assets Dr	$39,858.00
	To Income tax expense		$39,858.00
	(To record deferred tax assets)

Solution 4:

Swifty Corporation
Income Statement (Partial)
For year ended Dec 31, 2017
Particulars		Amount
Income before income taxes		$141,000.00
Income tax expense:
Current tax	$76,518.00
Deferred tax assets	-$39,858.00	$36,660.00
Net Income		$104,340.00