Question

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

2018	$	440,000
2019		360,000
2020		430,000
2021		470,000

   
Included in the income of 2018 was an installment sale of property in the amount of $66,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $26,400 in 2019, $33,000 in 2020, and $6,600 in 2021.

Included in the 2020 income was $28,000 interest from investments in municipal bonds.

The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond.

Required:
Prepare the year-end journal entries to record income taxes for the years 2018–2021.

Answer 1

Year	Particulars	Debit	Credit
2018	Tax Expenses	132000
	To Deferred Tax Liability (66000*30%)		19800
	To Tax Payable (374000*30%)		112200
2019	Tax Expenses	106020
	Deferred Tax Liability (66000-26400)*25%	9900
	To Tax Payable (386400*30%)		115920
2020	Tax Expenses	100500
	Deferred Tax Liability (33000*25%)	8250
	To Tax Payable (430000-28000+33000)*25%		108750
2021	Tax Expenses	117750
	Deferred Tax Liability (5600*25%)	1400
	To Tax Payable (470000+6600)*25%		119150

Working Notes

Year	Particulars	Amount
2018	Accured Income	440000
	Less: Instalment Revenue	-66000
	Taxable Income	374000
2019	Accured Income	360000
	Add: Instalment collection	26400
	Taxable Income	386400
2020	Accured Income	430000
	Less: Interest from municial Bonds	-23000
	Add: Instalment collection	28000
	Taxable Income	435000
2021	Accured Income	470000
	Add: Instalment collection	6600
	Taxable Income	476600

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