The following information was disclosed during the audit of Elbert Inc. 1. Year Amount Due per...

The following information was disclosed during the audit of Elbert Inc.

1.	Year	Amount Due per Tax Return
	2017	$130,000
	2018	104,000

2.		On January 1, 2017, equipment costing $600,000 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life. For tax purposes, the company uses the elective straight-line method over a 5-year life. (Hint: For tax purposes, the half-year convention as discussed in Appendix 11A must be used.)
3.		In January 2018, $225,000 is collected in advance rental of a building for a 3-year period. The entire $225,000 is reported as taxable income in 2018, but $150,000 of the $225,000 is reported as unearned revenue in 2018 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2019 and 2020.
4.		The tax rate is 40% in 2017 and all subsequent periods. (Hint: To find taxable income in 2017 and 2018, the related income taxes payable amounts will have to be “grossed up.”)
5.		No temporary differences existed at the end of 2016. Elbert expects to report taxable income in each of the next 5 years.

Question: Prepare the journal entry to record income taxes for 2018.

Solutions

Expert Solution


Computation of Taxable Income

Particulars	2017	2018
Taxable Income	3,25,000	2,60,000
2017: (130000/40*100)
2018: (104000/40*100)

Current Tax	1,30,000	1,04,000

Computation of DTA (Temporary difference)
	2017	2018	Remarks
Excess of depreciation as per financial reporting in 2017	60000	-	DTA
(600000/5)-(600000/5/2)

Excess rent revenue as per tax return	-	1,50,000	DTA
(225000-75000)

Total Difference (Influencing to DTA)	60,000	1,50,000	DTA
DTA @ 40%	24,000	60,000


Journal Entry for 2018	$	$
Income Tax Expenses	44,000
Deferred Tax Assets	60,000
Current Tax Liability		1,04,000
*Let me know if any thing required to explain. Kindly rate. Thanks

ekkarill92 answered 1 year ago

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