At the end of 2008, Lucretia McEvil Company has $180,000 of cumulative temporary differences that will result in reporting future taxable amounts as follows.
2009 .....$ 60,000
2010 .....50,000
2011 .....40,000
2012 .....30,000
.......$180,000
Tax rates enacted as of the beginning of 2007 are:
2007 and 2008 ...40%
2009 and 2010 ...30%
2011 and later ....25%
McEvil’s taxable income for 2008 is $320,000. Taxable income is expected in all future years.
Instructions
(a) Prepare the journal entry for McEvil to record income taxes payable, deferred income taxes, and income tax expense for 2008, assuming that there were no deferred taxes at the end of 2007.
(b) Prepare the journal entry for McEvil to record income taxes payable, deferred income taxes, and income tax expense for 2008, assuming that there was a balance of $22,000 in a Deferred Tax Liability account at the end of 2007.