Kara Fashions uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. Three years after its purchase, one of Karas buildings has a book value of $720,000 and a tax basis of $540,000. There were no other temporary differences and no permanent differences. Taxable income was $6 million and Karas tax rate is 25%. What is the deferred tax liability to be reported in the balance sheet? Assuming that the deferred tax liability balance was $28,000 the previous year, prepare the appropriate journal entry to record income taxes this year.

What is the deferred tax liability to be reported in the balance sheet?

General Journal

Income Tax Expense Debit Credit

Deferred Tax Liability

Income Tax Liability