Question

The following facts relate to Novak Corporation.

1.		Deferred tax liability, January 1, 2020, $24,400.
2.		Deferred tax asset, January 1, 2020, $0.
3.		Taxable income for 2020, $115,900.
4.		Pretax financial income for 2020, $244,000.
5.		Cumulative temporary difference at December 31, 2020, giving rise to future taxable amounts, $292,800.
6.		Cumulative temporary difference at December 31, 2020, giving rise to future deductible amounts, $42,700.
7.		Tax rate for all years, 20%.
8.		The company is expected to operate profitably in the future.

A. Compute income taxes payable for 2020.

Income taxes payable

$enter Income taxes payable in dollars

B. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020. (Credit account titles are automatically indented when 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.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

  

C. Prepare the income tax expense section of the income statement for 2020, beginning with the line “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Novak Corporation Income Statement (Partial) choose the accounting period                                                                      December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020
select an income statement item                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$enter a dollar amount
select an opening section name                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
select an income statement item                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues	$enter a dollar amount
select an income statement item                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues	enter a dollar amount
		enter a subtotal of the two previous amounts
select a closing name for this statement                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$enter a total net income or loss amount

Answer 1

Solution A:

income taxes payable for 2020 = Taxable income * Tax rate = $115,900*20% = $23,180

Solution B:

Computation of Required balance and recognition of Deferred tax liability and Deferred tax Assets -Novak Corporation
Particulars	Amount
Cumulative temporary differences giving rise to future taxable amount	$292,800.00
Required ending balance in deferred tax liability ($292,800*20%)	$58,560.00
Existing balance of deferred tax liability	$24,400.00
Deferred tax liability to be recorded for current year	$34,160.00
Temporary differences for current year giving rise to future taxable amount ($34,160/20%)	$170,800.00
Cumulative temporary differences giving rise to future deductible amount	$42,700.00
Required ending balance in deferred tax Assets (42,700*20%)	$8,540.00
Existing balance of deferred tax Assets	$0.00
Deferred tax assets to be recorded for current year	$8,540.00
Temporary differences for current year giving rise to future deductible amount ($8,540/20%)	$42,700.00

Journal Entries - Novak Corporation
Date	Particulars	Debit	Credit
31-Dec-20	Income tax expense Dr	$48,800.00
	Deferred tax assets Dr	$8,540.00
	To Income tax Payable ($115,900*20%)		$23,180.00
	To Deferred tax liability		$34,160.00
	(To record income tax and deferred tax for 2020)

solution c:

Novak Corporation
Income Statement (Partial)
For year ended December 31, 2020
Particulars		Amount
Income before taxes		$244,000.00
Less: Income tax expense:
Current Tax	$23,180.00
Deferred tax ($34,160 - $8,540)	$25,620.00
		$48,800.00
Net Income		$195,200.00