Question

. You are the accountant for Auxerre, and you have to prepare the journal for income taxes. You have gathered the following information for 2020:

1. Deferred tax liability, January 1, 2020, $40,000.
2. Deferred tax asset, January 1, 2020, $0.
3. Taxable income for 2020, $127,000.
4. Cumulative temporary difference on December 31, 2020, giving rise to future taxable amounts, $220,000.
5. Cumulative temporary difference on December 31, 2020, giving rise to future deductible amounts, $35,000.
6. There is one permanent difference between taxable and pretax financial income due to a $5,000 fine imposed by OSHA.
7. The tax rate is 40% for all years.
8. The company is expected to operate profitably in the future.

Prepare the journal entry to record income taxes for 2012.

Answer 1

Computation of Required balance and recognition of Deferred tax liability and Deferred tax Assets
Particulars	Amount
Cumulative temporary differences giving rise to future taxable amount	$220,000.00
Required ending balance in deferred tax liability ($220,000*40%)	$88,000.00
Existing balance of deferred tax liability	$40,000.00
Deferred tax liability to be recorded for current year	$48,000.00
Cumulative temporary differences giving rise to future deductible amount	$35,000.00
Required ending balance in deferred tax Assets (35,000*40%)	$14,000.00
Existing balance of deferred tax Assets	$0.00
Deferred tax assets to be recorded for current year	$14,000.00

Journal Entries
Date	Particulars	Debit	Credit
31-Dec-20	Income tax expense Dr	$84,800.00
	Deferred tax assets Dr	$14,000.00
	To Income tax Payable ($127,000*40%)		$50,800.00
	To Deferred tax liability		$48,000.00
	(To record income tax and deferred tax for 2020)