Question

The following information pertaining Juniper Corporation is available for the year ended 2015,its first year of operations: : Pretax financial income, $200,000. Excess of tax deprecation over book depreciation equals $36,000 in 2015 (future taxable). This temporary difference (i.e., $36,000 depreciation expense) will be reversed as follows: $23,000 in 2016 and $13,000 in 2017. The tax rates of 2015, 2016 and 2017 are 30%, 25%, and 25%, respectively. Instructions: (a) Compute Juniper’s 2015 taxable income. (b) Prepare a schedule to show the derivation of the deferred tax liability at the end of 2015. (c) Prepare the journal entry to record income tax expense, deferred income tax liability, and income taxes payable of Juniper for 2015.

Answer 1

Solution a:

Juniper Corporation
Computation of Taxable income for 2015
Particulars	Amount
Pre tax financial income	$200,000.00
Less: Excess of tax depreciation over book depreciation	$36,000.00
Taxable income	$164,000.00

Solution b:

Juniper corporation
Computation of deferred tax liability for 2015
Year	Reversal of temporary differences	Tax Rate	Deferred Tax Liability
2016	$23,000.00	25%	$5,750.00
2017	$13,000.00	25%	$3,250.00
Total	$36,000.00		$9,000.00

Solution c:

Juniper Corporation
Journal Entries - 2015
Particulars	Debit	Credit
Income tax expense Dr	$58,200.00
To Deferred Tax Liability		$9,000.00
To Income Tax Payable ($164,000*30%)		$49,200.00
(Being income tax expense and deferred tax recorded for 2015)