Question

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

2018	$	365,000
2019		285,000
2020		355,000
2021		395,000

   
Included in the income of 2018 was an installment sale of property in the amount of $34,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $13,600 in 2019, $17,000 in 2020, and $3,400 in 2021.

Included in the 2020 income was $12,000 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Solution:

Computaion of Taxable Income and Income tax
Particulars	2018	2019	2020	2021
Pre tax Accounting Income	$365,000.00	$285,000.00	$355,000.00	$395,000.00
Less: Income from installment sale to be recognized in future years	$34,000.00
Add: Recognition of installment sales		$13,600.00	$17,000.00	$3,400.00
Less: Interest on muncipal bonds				$12,000.00
Taxable Income	$331,000.00	$298,600.00	$372,000.00	$386,400.00
Tax Rate	30%	30%	25%	25%
Income tax Payable	$99,300.00	$89,580.00	$93,000.00	$96,600.00

Computaion of Deferred tax
Particulars	2018	2019	2020	2021
Reversible temporary differences	$34,000.00	$0.00	$0.00	$0.00
Deferred tax liability	$10,200.00
Reversal of temporary differences		$13,600.00	$17,000.00	$3,400.00
Reversal of Deferred tax liability		$4,080.00	$4,250.00	$850.00
Reversal of Deferred tax liability due to new tax rate		$1,020.00
Total reversal of Deferred tax liability	$0.00	$5,100.00	$4,250.00	$850.00

Journal Entries - De ville Company
Date	Particulars	Debit	Credit
2018	Income tax expense Dr	$109,500.00
	To Income tax payable		$99,300.00
	To Deferred Tax Liability		$10,200.00
	(Being income tax expense and deferred tax recorded)
2019	Income tax expense Dr	$84,480.00
	Deferred Tax Liability Dr	$5,100.00
	To Income tax payable		$89,580.00
	(Being income tax expense and reversal of deferred tax recorded)
2020	Income tax expense Dr	$88,750.00
	Deferred Tax Liability Dr	$4,250.00
	To Income tax payable		$93,000.00
	(Being income tax expense and reversal of deferred tax recorded)
2021	Income tax expense Dr	$95,750.00
	Deferred Tax Liability Dr	$850.00
	To Income tax payable		$96,600.00
	(Being income tax expense and reversal of deferred tax recorded)