Question

Marigold Inc.’s only temporary difference at the beginning and end of 2019 is caused by a $3,600,000 deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2020 and 2021. The related deferred tax liability at the beginning of the year is $1,440,000. In the third quarter of 2019, a new tax rate of 20% is enacted into law and is scheduled to become effective for 2021. Taxable income for 2019 is $6,000,000, and taxable income is expected in all future years.

Prepare the journal entry necessary to adjust the deferred tax liability when the new tax rate is enacted into law. (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

Draft the income tax expense portion of the income statement for 2019. Begin with the line “Income before income taxes.” Assume no permanent differences exist. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Marigold Inc.’s Income Statement (Partial) choose the accounting period                                                                      December 31, 2019For the Year Ended December 31, 2019For the Quarter Ended December 31, 2019
select an opening name for this partial income statement                                                                      AdjustmentCurrentDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$enter a dollar amount
select an income statement section name                                                                      AdjustmentCurrentDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
select an income statement item                                                                      AdjustmentCurrentDividendsExpensesIncome 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                                                                      AdjustmentCurrentDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues	enter a dollar amount
		enter a total of the two previous amounts
select a closing name for this statement                                                                      AdjustmentCurrentDividendsExpensesIncome 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

Account Titles and Explanation	Debit	Credit
Deferred Tax Liability	$    360,000.00
Income Tax Expense		$    360,000.00
	Future years
	2020	2021	Total
Future taxable (deductible) amounts	$ 1,800,000.00	$ 1,800,000.00	$ 3,600,000.00
Tax Rate	40%	20%
Deferred tax liability (asset)	$    720,000.00	$    360,000.00	$ 1,080,000.00
Deferred tax liability at the end o (computed above)	$ 1,080,000.00
Deferred tax liability at the beginning	$ 1,440,000.00
Deferred tax liability	$  (360,000.00)
Marigold Inc.’s
Income Statement (Partial)
For the Year Ended December 31, 2019
Income before income taxes		$ 6,000,000.00
Income tax expense
Current	$ 2,400,000.00
Adjustment due to change in tax rate	$  (360,000.00)	$2,040,000.00
Net income		$ 3,960,000.00