Possible Journal Entries:
Problem 9 (TTD AR inverted] ABC's tax accounting methods and GAAP accounting methods are the same except for the method used to account for earned but uncollected service revenues. Per GAAP, ABC accrues these revenues (debit accounts receivable, credit sales revenue) when the performance obligation is satisfied. Per tax rules, ABC is taxed on these revenues when the customer pays on account. In other words, services revenues are recognized on the accrual basis for GAAP and the cash basis for tax. ABC reports pretax GAAP earnings of $150,000 for the 12 months ended December 31, 2020. ABC's accounts receivable (relating to accrued service revenues) was $40,000 at December 31, 2020. Embedded in pretax GAAP earnings is interest revenue of $5,000 earned on bonds issued by the State of Texas. ABC's December 31, 2019 balance sheet showed a deferred tax liability in the amount of $5,500 pertaining to the taxable temporary difference that stems from the GAAP/tax difference in the accounting for accounts receivable. Required 1. Prepare the entries needed to record current and deferred income taxes at December 31, 2020. Assume a 21% corporate tax rate. Analysis for current tax entry: Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. Account Debit Credit 1 1 1 1 Enter your answer to the following question in the green box What amount of net income will be reported on the 2020 income statement? 2 Deferred income tax asset (Bal. Sht) Deferred income tax asset valuation allowance (Bal. Sht) Deferred income tax liability (Bal.Sht) Income tax payable (Bal.Sht) Liability for uncertain tax position (Bal. Sht) Income tax expense (Inc. Stmt) Problem 9 (TTD AR inverted] ABC's tax accounting methods and GAAP accounting methods are the same except for the method used to account for earned but uncollected service revenues. Per GAAP, ABC accrues these revenues (debit accounts receivable, credit sales revenue) when the performance obligation is satisfied. Per tax rules, ABC is taxed on these revenues when the customer pays on account. In other words, services revenues are recognized on the accrual basis for GAAP and the cash basis for tax. ABC reports pretax GAAP earnings of $150,000 for the 12 months ended December 31, 2020. ABC's accounts receivable (relating to accrued service revenues) was $40,000 at December 31, 2020. Embedded in pretax GAAP earnings is interest revenue of $5,000 earned on bonds issued by the State of Texas. ABC's December 31, 2019 balance sheet showed a deferred tax liability in the amount of $5,500 pertaining to the taxable temporary difference that stems from the GAAP/tax difference in the accounting for accounts receivable. Required 1. Prepare the entries needed to record current and deferred income taxes at December 31, 2020. Assume a 21% corporate tax rate. Analysis for current tax entry: Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. Account Debit Credit 1 1 1 1 Enter your answer to the following question in the green box What amount of net income will be reported on the 2020 income statement? 2 Deferred income tax asset (Bal. Sht) Deferred income tax asset valuation allowance (Bal. Sht) Deferred income tax liability (Bal.Sht) Income tax payable (Bal.Sht) Liability for uncertain tax position (Bal. Sht) Income tax expense (Inc. Stmt)
