Question

please solve:

The following information pertaining White Corporation is available for the year ended 2015:

Pretax financial income, $500,000.

Unearned revenue, $60,000, was deferred on the books but recognized in taxable income of 2015 (future deductible).  $35,000 and $25,000 of this temporary difference (i.e., the unearned revenue) will be reversed in 2016 and 2017, respectively.

The tax rates of 2015, 2016 and 2017 are 30%, 25%, and 25%, respectively.

Instructions:

(a) Compute White's 2015 taxable income.

(b)  Prepare the journal entry to record income tax expense, deferred income tax asset, and income taxes payable of White for 2015.

Answer 1

1. Calculation of White’s taxable income for year 2015

Financial income                                                                                                  = $500,000

Unearned Revenue (Temporary difference)                                               = $60,000

Taxable Income                                                                                                    = $560,000

Tax payable @30%                                                                                             = $168,000                          

Calculation of Deferred tax assets

Temporary Difference (For year 2016 & 2017)                                                       =$60,000

Amount of Deferred tax assets (@25%)                                                                =$15,000

1. Journal entries to record tax expense

Income Tax Expense [$168,000-$15,000]                                          $153,000

Deferred Tax Asset [($60,000) (0.25)]                                                 $15,000

               Tax Payable [($560,000)(0.3)]                                                                              $168,000

Note: Unearned revenue is a temporary difference and will result in reduced taxes in the future years so tax payable on such unearned revenue will result in creating a deferred tax asset.