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Indigo Corp. sold an investment on an installment basis. The total gain of $70,800 was reported for financial reporting purposes in the period of sale.
Indigo Corp. sold an investment on an installment basis. The total gain of $70,800 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment-sales method for tax purposes. The installment period is 3 years; one-third of the sale price is collected in the period of sale. The tax rate was 40% in 2020, and 20% in 2021 and 2022. The 20% tax rate was not enacted in law until 2021. The accounting and tax data for the 3 years is shown below. Financial Accounting Tax Return 2020 (40% tax rate) Income before temporary difference $82,600 $82,600 Temporary difference 70,800 23,600 Income $153,400 $106,200 2021 (20% tax rate) Income before temporary difference $82,600 $82,600 Temporary difference 0 ,600 Income $82,600 $106,200 2022 (20% tax rate) Income before temporary difference $82,600 $82,600 Temporary difference 0 23,600 Income $82,600 $106,200 Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable at the end of each year. No deferred income taxes existed at the beginning of 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit 2020 2021 (To record the adjustment for the decrease in the enacted tax rate.) (To record income taxes.) 2022
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