Question

Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2018 through 2021 except for differences in depreciation on an operational asset. The asset cost $210,000 and is depreciated for income tax purposes in the following amounts

: 2018 $ 69,300

2019 92,400

2020 31,500

2021 16,800

The operational asset has a four-year life and no residual value. The straight-line method is used for financial reporting purposes. Income amounts before depreciation expense and income taxes for each of the four years were as follows. 2018 2019 2020 2021 Accounting income before taxes and depreciation $ 115,000 $ 135,000 $ 125,000 $ 125,000 Assume the average and marginal income tax rate for 2018 and 2019 was 30%; however, during 2019 tax legislation was passed to raise the tax rate to 40% beginning in 2020. The 40% rate remained in effect through the years 2020 and 2021. Both the accounting and income tax periods end December 31. Required: Prepare the journal entries to record income taxes for the years 2018 through 2021

1.Record 2018 income taxes.

2Record 2019

3.record 2020

4.record 2021

Note: Enter debits before credits.

	Date General Journal Debit Credit Dec 31, 2018

Answer 1

Jourrnal Entry
Date	Account Titles	Debit	Credit
December 31, 2016	Income Tax Expense	18750
	Deferred Tax Liability		5040
	Income Tax Payable		13710
December 31, 2017	Income Tax Expense	30420
	Deferred Tax Liability		17640
	Income Tax Payable		12780
December 31, 2018	Income Tax Expense	29000
	Deferred Tax Liability	8400
	Income Tax Payable		37400
December 31, 2018	Income Tax Expense	29000
	Deferred Tax Liability	14280
	Income Tax Payable		43280

Notes:
1) Calculate Tax Payable
	2018	2019	2020	2021
Pretax Accounting Income	1,15,000	1,35,000	1,25,000	1,25,000
Less Depreciation for Tax	69,300	92,400	31,500	16,800
Taxable Income (A)	45,700	42,600	93,500	1,08,200
Tax Rate (B)	30%	30%	40%	40%
Tax Payable (A*B)	13710	12780	37400	43280

2) Calculate Temporary Difference
	2018	2019	2020	2021	Cumm, Temporary Diff.
Straight Line (210,000/4)	52,500	52,500	52,500	52,500
Less Tax Depreciation	69,300	92,400	31,500	16,800
Temporary Differences	-16,800	-39,900	21,000	35,700	0
2016		-39,900	21,000	35,700	16,800
2017			21,000	35,700	56,700
2018				35,700	35,700
2019					0

3) Calculate Deferred Tax Liability
	2018	2019	2020	2021
Cumulative Difference	16,800	56,700	35,700	0
Tax Rate	30%	40% (We use future rate)	40%	40%
Year End Balance	5,040	22,680	14,280	0
Add Previous Balance	0	-5,040	-22,680	-14,280
Credit/(Debit)	5,040	17,640	-8,400	-14,280