The records of Calib Corporation provided the following summarized data for 2006 and 2007:

a. Income tax rate, 32 percent. Assume that income taxes payable are paid 80 percent in the current year and 20 percent on April 15 of the next year.

b. Temporary differences:
( 1 )
The 2007 expenses include an $8,000 expense that must be deducted only in the 2006 tax return.
(2) 2007 revenues include a $6,000 revenue that was taxable only in 2008.

c. Taxable income shown in the tax returns was 2006, $82,000, and 2007, $85,000.
Required: 1. For each year compute

(a) income taxes payable and

(b) deferred income tax. Is each deferred income tax a liability or an asset? Explain. 2. Give the journal entry for each year to record income taxes payable, deferred income tax, and income tax expense. 3. Show what amounts related to income taxes should be reported each year on the income statement and balance sheet. 4. As a financial analyst, would you evaluate a deferred tax liability and taxes currently payable differently?

Transcribed Image Text:

Income statement Revenues Year-End December 31 Expenses (excluding income tax) Pretax income 2006 2007 $210,000 130,000 $218.000 133.000 $ 80.000 $ 85.000