Question

Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2015–2018 are as follows:

  

	Service Revenue			Collections			Pretax Accounting Income
2015	$	741,000		$	716,000		$	290,000
2016		850,000			855,000			355,000
2017		815,000			795,000			325,000
2018		800,000			820,000			305,000

  

There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is 40%.

(Hint: You may find it helpful to prepare a schedule that shows the balances in service revenue receivable at December 31, 2015–2018.)

Required:

1.	Prepare the appropriate journal entry to record Alsup's 2016 income taxes, Alsup’s 2017 income taxes and Alsup’s 2018 income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands.)

     

Answer 1

2015	Pretax accounting income	290000
	Deduct: Service revenue	-741000
	Add: Cash collections	716000
	Taxable income	265000
	Tax expense (plug)	116000
	Deferred tax liability (40% x 25,000)		10000
	Taxes payable (40% x 265,000)		106000
		Deferred Tax Liability
				10000	2015
2016	Pretax accounting income	355000
	Deduct: Service revenue	-850000
	Add: Cash collections	855000
	Taxable income	360000
	Tax expense (plug)	146000
	Deferred tax liability (40% x 5,000)		2000
	Taxes payable (40% x 360,000)		144000
		Deferred Tax Liability
				10000	2015
		2016	2000
2017	Pretax accounting income	325000
	Deduct: Service revenue	-815000
	Add: Cash collections	795000
	Taxable income	305000
	Tax expense (plug)	130000
	Deferred tax liability (40% x 20,000)		8000
	Taxes payable (40% x 305,000)		122000
		Deferred Tax Liability
				10000	2015
		2016	2000
				8000	2017
2018	Pretax accounting income	305000
	Deduct: Service revenue	-800000
	Add: Cash collections	820000
	Taxable income	325000
	Tax expense (plug)	138000
	Deferred tax liability (40% x 20,000)		8000
	Taxes payable (40% x 325,000)		130000
		Deferred Tax Liability
				10000	2015
		2016	2000
				8000	2017
		2018	8000