Question

1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.
2. Assume the enacted federal income tax law specifies that the tax rate will change from 25% to 20% in 2023. When scheduling the reversal of the depreciation difference, you were uncertain as to how to deal with the fact that the difference will continue to originate in 2022 before reversing the next two years. Upon consulting PricewaterhouseCoopers' Comperio database, you found:

.441 Depreciable and amortizable assets
Only the reversals of the temporary difference at the balance sheet date would be scheduled. Future originations are not considered in determining the reversal pattern of temporary differences for depreciable assets. FAS 109 [FASB ASC 740–Income Taxes] is silent as to how the balance sheet date temporary differences are deemed to reverse, but the FIFO pattern is intended.

You interpret that to mean, when future taxable amounts are being scheduled, and a portion of a temporary difference has yet to originate, only the reversals of the temporary difference at the balance sheet date can be scheduled and multiplied by the tax rate that will be in effect when the difference reverses. Future originations (like the depreciation difference the second year) are not considered when determining the timing of the reversal. For the existing temporary difference, it is assumed that the difference will reverse the first year the difference begins reversing.

Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.

please explain to me with detail, special question 2. ( i am so lost at tax rate change). thanks

Answer 1

Answers:

In the year 2021 the journal entry will be passed in the books of Barry transport company when tax rate is 25% is the Income tax expenses account will be debited by $15 million and Deferred tax asset account is also debited by $2 million and Deferred tax liability account will be credited by $13 million and income tax payable account is also credited by $4 million. When the tax rate has been changed from 25% to 20% then the journal entry has been recorded as Income tax expense account will be debited by the balance amount of $13.40 million and deferred tax asset account will be debited by $1.60 million and deferred tax liability account will be credited by $11 million and income tax payable account will be credited by the amount of currently tax payable of $4 million.

1.

Workings:

Formula Sheet:

2. Journal Entry of 2021 for recording the taxes when tax rate @20%

Working Note: