Q1 Big Grocery began operations 1/1/19. The company has a 12/31 year-end for book and tax purposes, and the marginal tax rate is 30% for all years. Book tax differences are as follows: DTA or DTL? 2019 2020 2021 2022 2023 . 145,000 82,000 Book income before tax Permanent differences: At 1/1/19, Big Grocery, Inc purchased a fixed asset for $100,000. For book purposes, this asset is to be depreciated over 5 years on a straight-line basis with no salvage value. For tax purposes, the deduction for depreciation is $45,000, $35,000, and $20,000 for 2019, 2020, and 2021, respectively. At 12/31/19, Big Grocery received $75,000 cash from a tenant representing prepaid rent income for the next three years. For financial statement purposes, $25,000 of the rent income will be earned (recorded in financial income statement) in each of 2020, 2021, and 2022. For tax purposes, the rent income is taxable in the period in which cash is collected. Big Grocery earned tax-exempt interest income of $5,000 per year from 2019-2023. There were no deferred tax assets or deferred tax liabilities prior to 2019. Temporary differences: TAXABLE INCOME Current tax payable Required 1. Using the reconciliation schedule on the next page, a/ Analyze the income tax consequences of the above to determine a) whether each difference is permanent or temporary and b) whether it involves a deferred tax liability or a deferred tax asset. b/ for 2019: determine taxable income and current taxes payable. c/ for 2020: determine taxable income and current taxes payable. Journal entry - 2019 2. Prepare the journal entry to record income tax at 12/31/19 and 12/31/20. Use any (not all) of the following account names: Income Tax Expense, Deferred Tax Liability (DTL), Deferred Tax Asset (DTA), Current/Income Tax Payable, Cash, Depreciation Expense, Accrued Liability, Operating Expenses, Rental Income, Gain on Sale of Equipment, and Accounts Receivable. Journal entry 2020 Q1 Big Grocery began operations 1/1/19. The company has a 12/31 year-end for book and tax purposes, and the marginal tax rate is 30% for all years. Book tax differences are as follows: DTA or DTL? 2019 2020 2021 2022 2023 . 145,000 82,000 Book income before tax Permanent differences: At 1/1/19, Big Grocery, Inc purchased a fixed asset for $100,000. For book purposes, this asset is to be depreciated over 5 years on a straight-line basis with no salvage value. For tax purposes, the deduction for depreciation is $45,000, $35,000, and $20,000 for 2019, 2020, and 2021, respectively. At 12/31/19, Big Grocery received $75,000 cash from a tenant representing prepaid rent income for the next three years. For financial statement purposes, $25,000 of the rent income will be earned (recorded in financial income statement) in each of 2020, 2021, and 2022. For tax purposes, the rent income is taxable in the period in which cash is collected. Big Grocery earned tax-exempt interest income of $5,000 per year from 2019-2023. There were no deferred tax assets or deferred tax liabilities prior to 2019. Temporary differences: TAXABLE INCOME Current tax payable Required 1. Using the reconciliation schedule on the next page, a/ Analyze the income tax consequences of the above to determine a) whether each difference is permanent or temporary and b) whether it involves a deferred tax liability or a deferred tax asset. b/ for 2019: determine taxable income and current taxes payable. c/ for 2020: determine taxable income and current taxes payable. Journal entry - 2019 2. Prepare the journal entry to record income tax at 12/31/19 and 12/31/20. Use any (not all) of the following account names: Income Tax Expense, Deferred Tax Liability (DTL), Deferred Tax Asset (DTA), Current/Income Tax Payable, Cash, Depreciation Expense, Accrued Liability, Operating Expenses, Rental Income, Gain on Sale of Equipment, and Accounts Receivable. Journal entry 2020