Question

On 1 January 20X7, Change Incorporated commenced business operations. At 31 December 20X9, the following information relates to Chang: 20X7 20X8 20X9 Earnings (loss) before tax $ 334,900 $ (486,100 ) $ 785,000 Tax rate (enacted in each year) 30 % 35 % 40 % Depreciation expense (asset cost was $730,000) 63,000 63,000 63,000 Capital cost allowance 219,000 0 91,000 Dividends received (nontaxable) 41,000 66,500 66,500 Golf club dues 10,900 10,900 10,900 Required:

1. Prepare journal entries to record tax for 2017, 2018, and 2019. Assume that the loss carry forward usage in 2018 is considered to be probable. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

a. Record entry for current and deferred income tax expense payable. (2017)

b. Record entry for current and deferred income tax benefit receivable. (2018)

c. Record entry for current and deferred income tax expense payable. (2019)

d. Record entry for current and deferred income tax benefit receivable. (2019)

2. Prepare journal entries to record tax for 2017, 2018, and 2019. Assume that the loss carries forward usage in 2018 is not considered to be probable but is considered to be probable in 2019. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

a. Record entry for current and deferred income tax expense payable. (2017)

b. Record entry for current and deferred income tax benefit receivable. (2018)

c. Record entry for current and deferred income tax expense payable. (2019)

d. Record entry for current income tax benefit recoverable. (2019)

Answer 1

1.

a. Dr. Income Tax Expense 334,900
Cr. Income Tax Payable 334,900

b. Dr. Income Tax Payable 486,100
Cr. Income Tax Expense 486,100

c. Dr. Income Tax Expense 785,000
Cr. Income Tax Payable 785,000

d. Dr. Income Tax Benefit Receivable 785,000
Cr. Income Tax Expense 785,000

2.

a. Dr. Income Tax Expense 334,900
Cr. Income Tax Payable 334,900

b. Dr. Income Tax Payable 486,100
Cr. Income Tax Expense 486,100

c. Dr. Income Tax Expense 785,000
Cr. Income Tax Payable 785,000

d. Dr. Income Tax Benefit Receivable 785,000
Cr. Income Tax Expense 785,000

Explanation

1. The loss carry forward usage in 2018 is considered to be probable, so the deferred tax asset is recorded in 2018.

2. The loss carry forward usage in 2019 is considered to be probable, so the deferred tax asset is recorded in 2019.