Question

The DeVille Company reported pretax accounting income on its income statement as follows:
   

2018	$	390,000
2019		310,000
2020		380,000
2021		420,000

   
Included in the income of 2018 was an installment sale of property in the amount of $44,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $17,600 in 2019, $22,000 in 2020, and $4,400 in 2021.

Included in the 2020 income was $18,000 interest from investments in municipal bonds.

The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond.

Required:
Prepare the year-end journal entries to record income taxes for the years 2018–2021.

Answer 1

	Working Note for Computation of Income Tax Expense, Deffered Tax Liability
		2018	2019	2020	2021
	Pretax Accounting Income	$390,000	$310,000	$380,000	$420,000
	Less: installment of Sales	$44,000
	Add: Cash Collected on Installment		$17,600	$22,000	$4,400
	Interest From Investment ( Permanent Reduction)				18000
	Taxable Income	$434,000	$327,600	$402,000	$406,400
	Tax Rate	30%	30%	25%	25%
	Income Tax Payable as per Taxable income	$130,200	$98,280	$100,500	$101,600
	Deferred Tax Liability Created at the End	$13,200	$6,600	$1,100	$0
		=44000*30%	=(44000-17600)*25%	=44000-17600-22000)25%	=44000-17600-22000-4400)25%
	Deffered Tax Reversal	-	$6,600.00	$5,500.00	$1,100.00
			($13200-$6600)	($6600-$1100)	($1100-0)
	Income Tax Expense	$143,400.00	$91,680.00	$95,000.00	$100,500.00
. Journal Entry
Date	Account Desription , Title	Debit	Credit
2018	Income Tax Expense	$143,400
	Deffered Tax Expense		$13,200
	Income Tax Payable		$130,200
	To Record Income Tax Expense & DTL Created
2019	Income Tax Expense	$91,680
	Deffered Tax Expense	$6,600
	Income Tax Payable		$98,280
	To Record Income Tax Expense & DTL Reversal
2020	Income Tax Expense	$95,000
	Deffered Tax Expense	$5,500
	Income Tax Payable		$100,500
	To Record Income Tax Expense & DTL Reversal
2021	Income Tax Expense	$100,500
	Deffered Tax Expense	$1,100
	Income Tax Payable		$101,600
	To Record Income Tax Expense & DTL Reversal