Question

Southern Atlantic Distributors began operations in January 2018 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2018, 30% in 2019, and 20% in 2020. Pretax accounting income for 2018 was $280,000, which includes interest revenue of $40,000 from municipal bonds. The enacted tax rate is 30%. Assuming no differences between accounting income and taxable income other than those described above: Required: 1. Complete the following table given below and prepare the journal entry to record income taxes in 2018. 2. What is Southern Atlantic’s 2018 net income?

Complete the following table given below to record income taxes in 2018. (Enter your answers in thousands. Amounts to be deducted should be indicated with a minus sign.)

	Tax Rate % Tax $ Recorded as: Pretax accounting income $280 Permanent difference 40,000 Income subject to taxation 40,280 x 30% $12,084 Deferred tax asset Temporary difference x = Deferred tax liability Income taxable in current year $40,280 x = Income tax payable

ournal entry worksheet

Record 2018 income taxes.

Note: Enter debits before credits.

	Event General Journal Debit Credit 1

Answer 1

			Tax Rate %		Tax $	Recorded as
Pretax Accounting Income	280,000.00
Permanent Difference	40,000.00
Income subject to Taxation	240,000.00	X	30%	=	72,000.00	Income Tax Expense
Temporary Difference	10,000.00	X	30%	=	3,000.00	Deferred Tax Liability
Income Taxable in Current Year	230,000.00	X	30%	=	69,000.00	Income Tax Payable
Depreciation as per Straight line = $40,000 / 4 Years = $10,000 per annum
Depreciation as per Tax Purposes - 2018 = $40,000 X 50% = $20,000 per annum
Temporary difference due to Depreciation = $20,000 - $10,000 = $10,000

Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
2018	Income Tax Expense	72,000.00
	Income Tax Payable		69,000.00
	Deferred Tax Liability		3,000.00
	(To record the Income Tax Expense)