Question

The pretax financial income of Swifty Company differs from its taxable income throughout each of 4 years as follows. Year Pretax Financial Income Taxable Income Tax Rate 2017 $285,000 $178,000 35 % 2018 318,000 234,000 40 % 2019 381,000 282,000 40 % 2020 402,000 593,000 40 % Pretax financial income for each year includes a nondeductible expense of $28,600 (never deductible for tax purposes). The remainder of the difference between pretax financial income and taxable income in each period is due to one depreciation temporary difference. No deferred income taxes existed at the beginning of 2017. Prepare journal entries to record income taxes in all 4 years. Assume that the change in the tax rate to 40% was not enacted until the beginning of 2018.

Answer 1

Year	Pre tax financial income (a)	Taxable income (b)	Difference c=(a-b)	Non Deductible Expense (d)	Temporary Difference e=(c+d)	Tax Rate (f)	Deferred Tax Liability (eXf)	Deffered Tax Liability- For Tax Rate Difference	Income Tax Payable (bXf)
2017	$285,000	$178,000	$107,000	$28,600	$135,600	35%	$47,460		$62,300
2018	$318,000	$234,000	$84,000	$28,600	$112,600	40%	$45,040	$6,780	$93,600
2019	$381,000	$282,000	$99,000	$28,600	$127,600	40%	$51,040		$112,800
2020	$402,000	$593,000	-$191,000	$28,600	-$162,400	40%	-$64,960		$237,200

Date	Account Tittle	Debit	Credit
2017	Income tax expenses	109760
	Deffered tax liability		47460
	Income tax payable		62300
2018	Income tax expenses	6780
	Deffered tax liability		6780
	(to record increase tax rate)
	Income tax expenses	138640
	Deffered tax liability		45040
	Income tax payable		93600
2019	Income tax expenses	163840
	Deffered tax liability		51040
	Income tax payable		112800
2020	Income tax expenses	172240
	Deffered tax liability	64960
	Income tax payable		237200