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)

ekkarill92 answered 10 months ago

Next > < Previous

Related Solutions

At the beginning of 2016, Norris Company had a deferred tax liability of $6,400, because of...

At the beginning of 2016, Norris Company had a deferred tax liability of $6,400, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2015 and 2016, but in 2015 Congress enacted a 37% tax rate for 2017 and future years. Norris’s accounting records show the following pretax items of financial income for 2016: income from continuing operations, $119,300 (revenues of $351,000 and expenses of $231,700);...

At the beginning of 2016, Norris Company had a deferred tax liability of $6,600, because of...

At the beginning of 2016, Norris Company had a deferred tax liability of $6,600, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2015 and 2016, but in 2015 Congress enacted a 39% tax rate for 2017 and future years. Norris’s accounting records show the following pretax items of financial income for 2016: income from continuing operations, $120,000 (revenues of $353,200 and expenses of $233,200);...

At the beginning of 2016, Norris Company had a deferred tax liability of $6,300, because of...

At the beginning of 2016, Norris Company had a deferred tax liability of $6,300, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2015 and 2016, but in 2015 Congress enacted a 38% tax rate for 2017 and future years. Norris’s accounting records show the following pretax items of financial income for 2016: income from continuing operations, $122,300 (revenues of $353,300 and expenses of $231,000);...

At the beginning of 2016, Norris Company had a deferred tax liability of $6,400, because of...

At the beginning of 2016, Norris Company had a deferred tax liability of $6,400, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2015 and 2016, but in 2015 Congress enacted a 39% tax rate for 2017 and future years. Norris’s accounting records show the following pretax items of financial income for 2016: income from continuing operations, $121,600 (revenues of $353,400 and expenses of $231,800);...

Discuss the situations that will result in a deferred tax liability and a deferred tax asset....

Discuss the situations that will result in a deferred tax liability and a deferred tax asset. Provide an example of each. Prepare a journal entry for your examples. Discuss how deferred liabilities affect the income statement.

Milton Ltd is in the consumer goods industry. Its deferred tax liability at the end of...

Milton Ltd is in the consumer goods industry. Its deferred tax liability at the end of the previous year was $600,000 and this consisted of the tax effect of depreciation loss in excess of depreciation, its only temporary difference then. In the current year ended 31 December 20X7, Milton introduced a new range of consumer products where goods are sold subject to warranty period of two years. In view of the uncertainty surrounding sales of the new products, the directors...

What is the difference between a deferred tax asset and a deferred tax liability? Explain the...

What is the difference between a deferred tax asset and a deferred tax liability? Explain the difference between a permanent difference and a timing (or temporary) difference as related to tax and financial accounting, and how those differences relate to deferred tax assets and deferred tax liabilities

What is the impact on deferred tax asset and deferred tax liability if a company records...

What is the impact on deferred tax asset and deferred tax liability if a company records accelerated depreciation for tax purposes and straight-line depreciation for book purposes?

Bandung Corporation began 2020 with a $46,000 balance in the deferred tax liability account. At the...

Bandung Corporation began 2020 with a $46,000 balance in the deferred tax liability account. At the end of 2020, the related cumulative temporary difference amounts to $350,000 and it will reverse evenly over the next 2 years. Pretax accounting income for 2020 is $525,000, the tax rat for all years is 20%, taxable income for 2020 is $405,000. a) Compute income taxes payable for 2020 b) Prepare the journal entry to record income tax expense, deferred income taxes, and income...

Sweet Corporation began 2017 with a $45,000 balance in the Deferred Tax Liability account. At the...

Sweet Corporation began 2017 with a $45,000 balance in the Deferred Tax Liability account. At the end of 2017, the related cumulative temporary difference amounts to $174,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2017 is $354,000, the tax rate for all years is 40%, and taxable income for 2017 is $318,000. Income taxes payable for 2017? $______ B.) Prepare the journal entry to record income tax expense, deferred income taxes, and income...

Subjects