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On January 1, 20X1, Torrey Company purchased a piece of equipment for $75,000. The equipment has a 5-year useful life and $0 residual value. The
On January 1, 20X1, Torrey Company purchased a piece of equipment for $75,000. The equipment has a 5-year useful life and $0 residual value. The company uses straight-line depreciation for financial accounting purposes. Assume that the depreciation deduction for income tax purposes is as follows: 20X1 = $35,000; 20X2 = $25,000; 20X3 = $5,000; 20X4 = $5,000; and 20X5 = $5,000. Assume that revenue in 20X1 is $50,000, that the revenue is the same for both tax and financial reporting purposes, and that the only expenses are depreciation and income taxes. The income tax rate is 40% in all years. Which ONE of the following should be included in Torrey's journal entry to record income tax expense in 20X1? DEBIT Income Tax Expense for $8,000 DEBIT Deferred Income Tax Asset for $8,000 CREDIT Income Tax Payable for $8,000 CREDIT Deferred Income Tax Liability for $8,000
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