Question

The following facts relate to Oriole Corporation.

1.		Deferred tax liability, January 1, 2020, $36,000.
2.		Deferred tax asset, January 1, 2020, $12,000.
3.		Taxable income for 2020, $126,000.
4.		Cumulative temporary difference at December 31, 2020, giving rise to future taxable amounts, $276,000.
5.		Cumulative temporary difference at December 31, 2020, giving rise to future deductible amounts, $114,000.
6.		Tax rate for all years, 20%. No permanent differences exist.
7.		The company is expected to operate profitably in the future.

(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

Answer 1

(b)

Date	Account Titles & Explanation	Debit($)	Credit($)
year 2020	Income tax expense	33600
	Deferred tax asset	10800
	To income tax payable		25200
	To deferred tax liability		19200

Working note :

1)

Calculation of pretax financial income For 2020
Particular	Amount($)
Cumulative temporary differences
giving rise to future taxable amount	276000
Required ending balance in deferred
tax liability (276000*20%)	55200
Existing balance of deferred tax Liability	36000
Deferred tax liability to be recorded for current year	19200
Temporary differences for current year giving
rise to future taxable Amount (19200/20%)	96000
Cumulative temporary differences
giving rise to future Deductible amount	114000
Required ending balance in deferred
Tax asset (114000*20%)	22800
Existing balance of deferred tax Asset	12000
Deferred tax assets to be recorded for the current year	10800
Temporary differences for current year giving
rise to future deductible Amount (10800/20%)	54000
Taxable income	126000
ADD : Temporary differences for current year giving	96000
rise to future taxable Amount
less : Temporary differences for current year giving	54000
rise to future deductible Amount
Pre tax financial income	168000

2)

Working

Income Tax Expense = Pretax financial income for 2020 * Tax rate

168000 * 20 % = 33600

Income Tax Payable = Taxable income for 2020 * Tax rate

126000 * 20% = 25200