(One Temporary Difference, Future Taxable Amounts, One Rate, Beginning Deferred

Taxes) Houston 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: Fill in all forms and show calculation

(a) Compute income taxes payable for 2014.

Taxable income for 2014

Amount

Enacted tax rate

Percentage

Income tax payable for 2014

Formula

(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

Amount

Income tax expense

Title

Formula

Title

Formula

Formula

Title

Formula

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:

Pretax financial income

Amount

Title

Amount

Title

Formula