Accounting for Income Taxes
Several years ago, Frantz Company purchased equipment for $200,000. Frantz uses straight-line depreciation for financial reporting and accelerated depreciation for tax purposes. At December 31, 2020, the carrying value of the equipment was $160,000 and its tax basis was $150,000. At December 31, 2021, the carrying value of the equipment was $120,000 and the tax basis was $100,000.
Frantz Company started estimating warranty expense for GAAP in 2021. The Company recognized warranty expense of $50,000 in 2021 but actually paid out $10,000. The Company believes the other $40,000 will be paid out in 2022.
There were no other temporary differences and no permanent differences. Pretax accounting income for the current year was $250,000. A tax rate of 25% applies to all years.
Required:
Prepare one journal entry to record Frantz's income tax expense for 2021. Show well-labeled computations for the income tax payable and the change in the deferred tax account.