Question

Wicks Corporation began operations on January 1, 2019. At the end of 2019, Wicks reported pretax financial income of $54,300 and taxable income of $62,830, due to two temporary differences. The income tax rate is 30% for 2019 through 2021, but Congress has enacted a tax rate of 35% for 2022 and beyond. To determine its deferred taxes, Wicks prepared the following schedule of expected future taxable and deductible amounts for the two temporary differences:

	2020	2021	2022	2023
Future taxable amounts	$4,600	$3,800	$4,700	$3,600
Future deductible amount			(15,100)	Required: 1. Prepare Wicks’s income tax journal entry at the end of 2019. Assume a valuation allowance is not required. 2. Prepare the lower portion of the 2019 income statement for Wicks.

Answer 1

Answer; Preparation of Journal entry
DATE	Accounts Title and Explanation	Debit (in $)	Credit (in $)
31-Dec-19	Income tax expense	$24,274
	Deferred tax assets     ($15,100*35%)	$5,285
	Income tax payable            ($62,830*30%)		$18,849
	Deferred tax liability           [($4,600+ $3,800 )*30% + ($4,700 + $3,600)*35%)		$5,425
	(To record income tax and deferred tax for 2019)

Wicks Corporation Partial Income Statement For the year ended December 31, 2019
Particulars	Amount
Income before income taxes		$54,300.00
Income tax expense:
Current tax	$18,849
Deferred tax liability	$5,425
Deferred tax assets	($5,285)	($18,989)
Net Income		$35,311