Question

In: Accounting

Exercise 18-23 At the end of 2016, Concord Corporation reported a deferred tax liability of $43,000....

Exercise 18-23

At the end of 2016, Concord Corporation reported a deferred tax liability of $43,000. At the end of 2017, the company had $245,000 of temporary differences related to property, plant, and equipment. Depreciation expense on this property, plant, and equipment has been lower than the CCA claimed on Concord’s income tax returns. The resulting future taxable amounts are as follows:

2018

$79,000

2019

63,000

2020

56,000

2021

47,000

$245,000


The tax rates enacted as of the beginning of 2016 are as follows: 32% for 2016 and 2017; 31% for 2018 and 2019; and 26% for 2020 and later. Taxable income is expected in all future years.

Calculate the deferred tax account balance at December 31, 2017.


Prepare the journal entry for Concord to record deferred taxes for 2017.

Early in 2018, after the 2017 financial statements were released, new tax rates were enacted as follows: 30% for 2018 and 28% for 2019 and later.
Prepare the journal entry for Concord to recognize the change in tax rates.

Solutions

Expert Solution

Solution :

Concord Corporation
Computation of Deferred Tax balance at December 31, 2017
Year Reversal of temporary differences - Depreciation Tax Rate Deferred Tax Liability
2018 $79,000.00 31% $24,490.00
2019 $63,000.00 31% $19,530.00
2020 $56,000.00 26% $14,560.00
2021 $47,000.00 26% $12,220.00
$245,000.00 $70,800.00
Concord Corporation
Journal Entries
Particulars Debit Credit
Income tax expense Dr $27,800.00
            To Deferred Tax Liability ($70,800 - $43,000) $27,800.00
(Being deferred tax liability recoganized for temporary differences)
Concord Corporation
Computation of Deferred Tax due to change in tax rate
Year Reversal of temporary differences - Depreciation Tax Rate Deferred Tax Liability
2018 $79,000.00 30% $23,700.00
2019 $63,000.00 28% $17,640.00
2020 $56,000.00 28% $15,680.00
2021 $47,000.00 28% $13,160.00
$245,000.00 $70,180.00
Concord Corporation
Journal Entries
Particulars Debit Credit
Deferred Tax Liability Dr ($70,800 - $70,180) $620.00
            To Income Tax expense $620.00
(Being reversal of deferred tax due to change in tax rate)

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