Problem Three

Magruder Company reports pretax accounting income of $5,000,000 for 2019. The 2019 income tax rate is 20%. INCLUDED in accounting income is depreciation expense of $500,000 which was calculated using the straight line method. Magruders tax manager indicates that depreciation expense per the tax return will be $2,000,000 because the tax laws allow more accelerated depreciation. Magruders pretax accounting income does NOT include $1,000,000 of prepaid rent that a tenant paid to the company in 2019 because the prepayment represents rent due for 2020. The accountant properly recorded this amount as a liability on the balance sheet (Unearned Rent). The tax manager advises that the $1,000,000 must be INCLUDED in taxable income for 2019.

Required:

1. Calculate taxable income and income tax payable for 2019.

2. Prepare the adjusting entry to record income tax expense, deferred income taxes, and income tax payable.