Question

Dre Inc. began operations on 01/01/2020 and bought some equipment for $30,000. Dre uses a four-year straight-line depreciation for accounting purposes. For tax, the deduction is 40% of cost in 2020, 30% in 2021, and 30% in 2022. Pretax accounting income for 2020 was $160,000, including interest revenue of $25,000 from municipal bonds. The tax rate is 30% for all years.

Required:
Prepare a journal entry to record income taxes for the year 2020. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

	For 2021 Deferred tax workings
	WDV at beginning in books	22,500
	WDV at beginning in tax	18,000
	Temporary difference	4,500
	Deferred tax liability	1,350
	Computation of tax payable-
	Pre-tax income	160,000
	Add: depreciation in books	7,500
	Less: depreciation in tax	(12,000)
	Less: exempted municipal bond interest	(25,000)
	Taxable income	130,500
	Tax rate	30%
	Tax payabe	39,150
Date	Accounts	Debit	Credit
2020	Income tax expenses A/c---Dr	39,150
	Deferred tax expenses A/c---Dr	1,350
	To Tax payable A/c		39,150
	To Deferred tax liability A/c		1,350
	(Being tax expenses for 2020 recorded)