Question

Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2018 through 2021 except for differences in depreciation on an operational asset. The asset cost $190,000 and is depreciated for income tax purposes in the following amounts:

2018	$	62,700
2019		83,600
2020		28,500
2021		15,200

  
The operational asset has a four-year life and no residual value. The straight-line method is used for financial reporting purposes.
  
Income amounts before depreciation expense and income taxes for each of the four years were as follows.
   

	2018			2019			2020			2021
Accounting income before taxes and depreciation	$	105,000		$	125,000		$	115,000		$	115,000

  
Assume the average and marginal income tax rate for 2018 and 2019 was 30%; however, during 2019 tax legislation was passed to raise the tax rate to 40% beginning in 2020. The 40% rate remained in effect through the years 2020 and 2021. Both the accounting and income tax periods end December 31.
   
Required:
Prepare the journal entries to record income taxes for the years 2018 through 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

Answer 1

Schedule of Computation of Tax Expense
Particular		2018	2019	2020	2021
Accounting Income before Income and deprecaition		$105,000	$125,000	$115,000	$115,000
Less: Depreciation as per books 190000/4		$47,500	$47,500	$47,500	$47,500
Accounting Income after deprecaition		$57,500	$77,500	$67,500	$67,500
Income Tax Rate		30%	30%	40%	40%
Income Tax Expense A		$17,250	$23,250	$27,000	$27,000
Accounting Income before Income and deprecaition		$105,000	$125,000	$115,000	$115,000
Less: Depreciation as per Income tax pupose		$62,700	$83,600	$28,500	$15,200
Taxable Income after depreciation		$42,300	$41,400	$86,500	$99,800
Income Tax Payable B		$12,690	$12,420	$34,600	$39,920
DTL		$4,560	$10,830
Reversal of DTL				-$7,600	-$12,920
Journal Entry
Date	Account Title	Debit	Credit
31-Dec-18	Income Tax Expense	$17,250.00
	Income Tax Payable		$12,690.00
	Deferred Tax Liability		$4,560.00
	To Record Tax Expense and DTL Created
31-Dec-19	Income Tax Expense	$23,250.00
	Income Tax Payable		$12,420.00
	Deferred Tax Liability		$10,830.00
	To Record Tax Expense and DTL Created
31-Dec-20	Income Tax Expense	$27,000.00
	Deferred Tax Liability	$7,600.00
	Income Tax Payable		$34,600.00
	To Record Tax Expense and reversal of DTL
31-Dec-21	Income Tax Expense	$27,000.00
	Deferred tax Liability	$12,920.00
	Income Tax Payable		$39,920.00
	To Record Tax Expense and reversal of DTL