Question

The DeVille Company reported pretax accounting income on its income statement as follows:

   

2016	$	390,000
2017		310,000
2018		380,000
2019		420,000

   

Included in the income of 2016 was an installment sale of property in the amount of $44,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $17,600 in 2017, $22,000 in 2018, and $4,400 in 2019.

   

Included in the 2018 income was $18,000 interest from investments in municipal bonds.

   

The enacted tax rate for 2016 and 2017 was 30%, but during 2017 new tax legislation was passed reducing the tax rate to 25% for the years 2018 and beyond.

   

Required:

Prepare the year-end journal entries to record income taxes for the years 2016–2019. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1 Record 2016 income taxes. 2 Record 2017 income taxes. 3 Record 2018 income taxes. 4 Record 2019 income taxes.

Answer 1

First I will show the calculations and then I will provide the journal entries:

Calculations and explanations:

Pretax accouting income on its income statement as follows:
2016	370,000
2017	290,000
2018	360,000
2019	400,000
Included in 2016 income was sale of property in the amount of 36,000.
However, for tax purposes, Deville reported the inome in the year cash was collecteed…
2017	14,400
2018	18,000
2019	3,600
	36,000
Included in 2018 income was 13,000 intrest from investments in municipal bonds
The enacted tax rates are…
2016	30%
2017	30%
2018	25%
2019	25%
	2016	2017	2018	2019
Pretax income	370,000	290,000	360,000	400,000
Installment Sales	-        36,000	14,400	18,000	3,600
Municipal Bond Intrest	-	-	-        13,000	-
Taxable Income	334,000.00	304,400.00	365,000.00	403,600.00
Tax Rate	30%	30%	25%	25%
Income Tax Payable	100,200.00	91,320.00	91,250.00	100,900.00
	2016	2017	2018	2019	Cumulative Temporary Difference
Temporary Differences	-   36,000.00	14,400.00	18,000.00	3,600.00	-
2016		14,400.00	18,000.00	3,600.00	36,000.00
2017			18,000.00	3,600.00	21,600.00
2018				3,600.00	3,600.00
2019				-	-
	2016	2017	2018	2019
Cumulative Difference	36,000.00	21,600.00	3,600.00	-
Tax Rate	30%	25%	25%	25%
Year End Balance	10,800.00	5,400.00	900.00	-
Previous Year Balance	-	-   10,800.00	-     5,400.00	-        900.00
Credit / (debit)	10,800.00	-     5,400.00	-     4,500.00	-        900.00

Please note that tax rate in 2017 is taken as 25% (as the tax rate changes when computing deferred tax liability/asset).

On the basis of above calculations the journal entries are provided below:

2016 Journal entry
Income Tax Expense	111,000.00
Deffered Tax Liability		10,800.00
Income Tax Payable		100,200.00
2017 Journal Entry
Income Tax Expense	85,920.00
Deferred Tax Asset	5,400.00
Income Tax Payable		91,320.00
2018 Journal Entry
Income Tax Expense	86,750.00
Deferred Tax Asset	4,500.00
Income Tax Payable		91,250.00
2019 Journal Entry
Income Tax Expense	100,000.00
Deferred Tax Asset	900.00
Income Tax Payable		100,900.00