Question

he information that follows pertains to Esther Food Products:

At December 31, 2018, temporary differences were associated with the following future taxable (deductible) amounts:

Depreciation	$	54,000
Prepaid expenses		23,000
Warranty expenses		(20,000	)

No temporary differences existed at the beginning of 2018.

Pretax accounting income was $77,000 and taxable income was $20,000 for the year ended December 31, 2018.

The tax rate is 40%.

Required:
Complete the following table given below and prepare the appropriate journal entry to record income taxes for 2018.
1.

Complete the following table given below to record income taxes for 2018. (Negative amounts should be entered with a minus sign.)

	x Tax Rate = Tax $ Recorded as: Pretax accounting income $77,000 Permanent differences Income subject to taxation x = Temporary Differences x = x = x = Income taxable in current year x =

2. Record 2018 income taxes.

Answer 1

• Requirements

		x	Tax Rate	=	Tax $	Recorded as:
Pretax accounting income	$77,000
Permanent differences	$0
Income subject to taxation	$77,000	x	40%	=	$30,800	Income tax expense
Temporary Differences
Depreciation	($54,000)	x	40%	=	($21,600)	Deferred Tax Liabilities
Prepaid Expenses	($23,000)	x	40%	=	($9,200)	Deferred Tax Liabilities
Warranty expense	$20,000	x	40%	=	$8,000	Deferred Tax assets
Income taxable in current year	$20,000	x	40%	=	$8,000	Income Tax Payable

• Journal entry

Accounts title	Debit	Credit
Income Tax Expense	$30,800
Deferred tax assets	$8,000
Deferred tax liabilities		$30,800
Income tax payable		$8,000
OR
Income Tax Expense	$30,800
Deferred tax liabilities ($30800 - 8000)		$22,800
Income tax payable		$0