Question

Ganesha co. at the end of 201, its first year of operation, prepared a reconciliation between pretax financial income and taxable income as follows:

pretax financial income $950,000

estimated warranty expense deductible for taxes when paid. $600,000

extra depreciation ($375,000)

Taxable income $1,175,000

Estimated warenty expense of $50,000 will be deductible in 2019, $180,000 in 2020, and $120,000 in 2021. the use of the depreciation assets will results in taxable amounts of $125,000 in each of the next three years?

A. Prepare a table of future taxable and deductible amounts?

B. Prepare Journal Entry to record income tax expense, deferred income taxes, and income taxes payable for 2018, assuming as income tax rate of 35% for all years

Answer 1

Answer:

Ganesha Co	Current year 2021	Future Taxable Amounts	Future deductible Amounts
PreTax Financial Income	950000
Permanent difference	-
Temporary differences
Estimated warranty expenses - deductible for taxes when paid	600000		(600000)
Extra depreciation	(375000)	375000
Taxable Income	1175000	375000	(600000)
Enacted tax rate	35%
Tax payable currently	411250
Deferred tax liability	131250
Deferred tax Asset	(210000)
Journal Entry
Particulars	Debit ($)	Credit ($)
Dr Income tax expense	332500*
Dr Deferred tax Asset	210000
Cr Income Tax payable		411250
Cr Deferred tax Liability		131250

*Income tax expense for the year is calculated @35% on pre tax financial income - 950,000*35%