Question

2018 Pretax Accounting Income: $600,000
2018 Municipal Bond Interest Income Recognized in Pretax Accounting Income:  $10,000
2018 Warranty Expense of $40,000 for Accounting Purposes
2018 Actual Warranty Costs Incurred were $30,000
December 31, 2018 Warranty Liability is $10,000
2018 Installment Sales Included in Pretax Income Totaled $150,000
2018 Installment Sales for Tax Purposes Totaled $100,000
December 31, 2018 Installment Receivable was $50,000 (to be collected equally in 2019/20)
Federal Fines Included Against Pretax Income totaled $20,000
All Fixed Assets Purchased Prior to January 1, 2018 were Fully Depreciated at 12/31/17
Fixed Assets purchased on January 1, 2018 for $150,000.  Estimated Life is 4 Years
Depreciation for Accounting Purposes is Straight Line
Depreciation for Tax Purposes for 4 Year Assets is 50%, 30%, 10%, and 10%
Federal Tax Rate is 20%

What is the taxable income for the year ended December 31, 2018?

What is the current/deferred tax journal entry to necessary at December 31, 2018?

Answer 1

Solution :

Tax schedule showing reconciliation between pre tax financial income, taxable income, deferred tax account
Particulars	Current Year	Future Years	Future Years
		FD - DTA	FD - DTL
Pretax accounting income	$600,000.00
Permanent Differences
Interest on muncipal bonds	-$10,000.00
Federal fines	$20,000.00
Temporary Differences
Installment sales accured but not received	-$50,000.00		$50,000.00
Extra depreciation allowed as per income tax over book depreciation ($150,000 * 50% - $150,000*25%)	-$37,500.00		$37,500.00
Accrued warrant expense	$10,000.00	-$10,000.00
Taxable Income	$532,500.00	-$10,000.00	$87,500.00
Tax rate	20%	20%	20%
Income tax payable	$106,500.00	-$2,000.00	$17,500.00

Journal Entries
Date	Particulars	Debit	Credit
31-Dec-18	Income tax expense Dr	$122,000.00
	Deferred tax Assets Dr	$2,000.00
	To Income tax payable		$106,500.00
	To Deferred tax liability		$17,500.00
	(To record income tax expense and deferred taxes)