Question

Exercise 19-17

Taxable income and pretax financial income would be identical for Huber Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared.

Taxable income		2013			2014			2015
Excess of revenues over expenses (excluding two temporary differences)		$170,200			$216,800			$94,800
Installment gross profit collected		8,100			8,100			8,100
Expenditures for warranties		(5,800)			(5,800)			(5,800)
Taxable income		$172,500			$219,100			$97,100
Pretax financial income		2013			2014			2015
Excess of revenues over expenses (excluding two temporary differences)		$170,200			$216,800			$94,800
Installment gross profit earned		24,300			–0–			–0–
Estimated cost of warranties		(17,400)			–0–			–0–
Income before taxes		$177,100			$216,800			$94,800

The tax rates in effect are 2013, 45%; 2014 and 2015, 50%. All tax rates were enacted into law on January 1, 2013. No deferred income taxes existed at the beginning of 2013. Taxable income is expected in all future years.

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013, 2014, and 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Pretax financial income	2013	2014	2015
Excess of revenues over expenses (excluding two temporary differences)	$ 170,200.00	$ 216,800.00	$            94,800.00
Installment gross profit earned	$      8,100.00	$      8,100.00	$               8,100.00
Estimated cost of warranties	$      5,800.00	$      5,800.00	$               5,800.00
Income before taxes	$ 172,500.00	$ 219,100.00	$            97,100.00
Income Tax Rate	45%	50%	50%
Income Tax	$    77,625.00	$ 109,550.00	$            48,550.00
Deffered Tax Assets (5800*2*50%)	$      5,880.00	$      2,940.00	$               2,940.00
Deffered Tax Liablities (8100*2*50%)	$      8,100.00	$      4,050.00	$               4,050.00
Tax Expenses for the Year	$    79,845.00	$ 110,660.00	$            47,440.00

		Debit	Credit
2013	Income Tax Expenses	$                    77,625.00
	To Income Tax Payable		$                     77,625.00
	Deffered Tax Assets (5800*2*50%)	$                      5,880.00
	Deffered Tax Liablities (8100*2*50%)		$                       8,100.00
	Profit & Loss	$                      2,220.00
2014	Income Tax Expenses	$                  109,550.00
	To Income Tax Payable		$                  109,550.00
	Deffered Tax Assets		$                       2,940.00
	Deffered Tax Liablities	$                      4,050.00
	Profit & Loss		$                       1,110.00
2015	Income Tax Expenses	$                    48,550.00
	To Income Tax Payable		$                     48,550.00
	Deffered Tax Assets		$                       2,940.00
	Deffered Tax Liablities	$                      4,050.00
	Profit & Loss		$                       1,110.00