Question
E19-3 (One Temporary Difference, Future Taxable Amounts, One Rate, Beginning Deferred Taxes) Bandung Corporation began 2014 with a $92,000 balance in the Deferred Tax Liability
E19-3 (One Temporary Difference, Future Taxable Amounts, One Rate, Beginning Deferred Taxes) Bandung Corporation began 2014 with a $92,000 balance in the Deferred Tax Liability account. At the end of 2014, the related cumulative temporary difference amounts to $350,000 and it will reverse evenly over the next 2 years. Pretax accounting income for 2014 is $525,000 , the tax rate for all years is 40% , and taxable income for 2014 is $405,000 Instructions:
(a) Compute income taxes payable for 2014. | ||||||||||||||||||||||||||
Taxable income for 2014 | $405,000 | |||||||||||||||||||||||||
Enacted tax rate | 40% | |||||||||||||||||||||||||
Income tax payable for 2014 | $162,000 | |||||||||||||||||||||||||
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014. | ||||||||||||||||||||||||||
Future Years | 2015 | 2016 | Total | |||||||||||||||||||||||
Future taxable (deductible) amounts | Amount | Amount | Formula | |||||||||||||||||||||||
Tax Rate | Percentage | Percentage | ||||||||||||||||||||||||
Deferred tax liability (asset) | Formula | Formula | Formula | |||||||||||||||||||||||
Deferred tax liability at the end of 2014 | Amount | |||||||||||||||||||||||||
Title | Amount | |||||||||||||||||||||||||
Title | Formula | |||||||||||||||||||||||||
Title | Formula | |||||||||||||||||||||||||
Title | Formula | |||||||||||||||||||||||||
Account Title | Amount | |||||||||||||||||||||||||
Account Title | Amount | |||||||||||||||||||||||||
Account Title | Amount | |||||||||||||||||||||||||
(c) Prepare the income tax expense section of the income statement for 2014, beginning with the line "Income before income taxes." | ||||||||||||||||||||||||||
Income before income taxes | $525,000 | |||||||||||||||||||||||||
Income tax expense | ||||||||||||||||||||||||||
current | $162,000 | |||||||||||||||||||||||||
deferred | 48,000 | 210,000 | ||||||||||||||||||||||||
net income | $315,000 | |||||||||||||||||||||||||
Note to instructor: Because of the flat tax rate for all years, the amount of cumulative temporary difference existing at the beginning of the year can be calculated by dividing $92,000 by 40%, which equals $230,000. The difference between the $230,000 cumulative temporary difference at the beginning of 2014 and the $350,000 cumulative temporary difference at the end of 2014 represents the net amount of temporary difference originating during 2014 (which is $120,000). With this information, we can reconcile pretax financial income with taxable income as follows:
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