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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