Company A reports pretax financial income of $100,000 for 2019. The following items caused taxable income...

Company A reports pretax financial income of $100,000 for 2019. The following items caused taxable income to be different than pretax financial income.

$5,000 of life insurance carried by the company on key officers.
Estimated warranty liability is $20,000 for accounting purposes and $0 for tax purposes.
Depreciation for tax purposes exceeds depreciation for accounting purposes by $25,000.

Company A's tax rate is 25% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2019.

Instructions:

Compute taxable income and income taxes payable for 2019.

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019.

Expert Solution

	Pretax Financial Income	$ 1,00,000
Less	Life Insurance on Key Officers	$ 5,000
Less	Depreciation as per Tax Purpose	$ 25,000
Add	Estimated warranty Liability	$ 20,000
	Taxable Income	$ 90,000

	Income Tax Payable	$ 22,500
	Income Tax Paid (100,000*25%)	$ 25,000
	Deffered Tax	$ 2,500


Journal entries
For Income Tax Expense & Income Tax Payable for 2019

Dr	Income Tax A/c	$ 22,500
Cr	Income Tax Payable A/c		$ 22,500

For Deffered Income Taxes

Dr	Income Tax Payable A/c	$ 2,500
Cr	Deffered Tax		$ 2,500

ekkarill92 answered 2 years ago

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