Question

R.S. reported pre-tax accounting income in 2017, 2018, and 2019 of $80 million, plus an additional 2017 income of $50 million from installment sales of property. However, the installment sales income is reported on the tax return when collected, in 2018 ($20 million) and 2019 ($30 million). The enacted tax rate is 40% each yr. Prepare the table calculating the annual tax payable for each yr. Prepare the journal entry for each yr.

............................. ..................... Current yr ..................Future Taxable amounts ...........................Future Taxable Amount (total)

..................................................... 2017 .............................2018 ................2019

Pretax accounting income:

Temporary difference:

Installment income

Taxable income (tax return)

Enacted tax rate:

Tax payable currently:

Answer 1

Solution:

Computation of Taxable Income and Income Tax Payable (In million)
Particulars	2017	2018	2019
Pretax accounting income	$80.00	$80.00	$80.00
Less: Income from installment sale property	-$50.00	$0.00	$0.00
Add: Collection of installment sales	$0.00	$20.00	$30.00
Taxable Income	$30.00	$100.00	$110.00
Income Tax Payable	$12.00	$40.00	$44.00

Journal Entries - R.S. (In Millions)
Year	Particulars	Debit	Credit
2017	Income Tax Expense Dr	$32.00
	To Income tax Payable		$12.00
	To Deferred tax liability		$20.00
	(To record income tax and deferred tax for 2017)
2018	Income Tax Expense Dr	$32.00
	Deferred tax liability Dr	$8.00
	To Income tax Payable		$40.00
	(To record income tax and deferred tax for 2018)
2019	Income Tax Expense Dr	$32.00
	Deferred tax liability Dr	$12.00
	To Income tax Payable		$44.00
	(To record income tax and deferred tax for 2019)