Recording Multiple Temporary Differences, Change in Enacted Tax Rate Wittco Company reports pretax GAAP income in Year 1, its first year of operations, of $350,000. Temporary differences in the GAAP basis and tax basis of assets arose during the year from the following two sources. Prepayment of Year 2 rent in the amount of $84,000 in Year 1. instaliment sale totaling $126,000, with cash collections expected in two equal amounts in Year 3 and Year 4. The enacted tax rates are 25% in Year 1, 30% in Year 2, and 40% in Year 3 and thereafter. Required a. Record the income tax journal entry on December 31 of Year 1. Date Dec 31, Year 1 Income Tax Expense Deferred Tax Liability Income Tax Payable To record income tax expense Account Name Dr. 65,600 0 0 Cr. 0 30,600 35,000 b. Record the income tax journal entry on December 31 of Year 1, assuming that a new tax law is passed in Year 1 decreasing the tax rate to 20% for Year 1 and all years thereafter.
Recording Multiple Temporary Differences, Change in Enacted Tax Rate Wittco Company reports pretax GAAP income in Year 1, its first year of operations, of $350,000. Temporary differences in the GAAP basis and tax basis of assets arose during the year from the following two sources. Prepayment of Year 2 rent in the amount of $84,000 in Year 1. instaliment sale totaling $126,000, with cash collections expected in two equal amounts in Year 3 and Year 4. The enacted tax rates are 25% in Year 1, 30% in Year 2, and 40% in Year 3 and thereafter. Required a. Record the income tax journal entry on December 31 of Year 1. Date Dec 31, Year 1 Income Tax Expense Deferred Tax Liability Income Tax Payable To record income tax expense Account Name Dr. 65,600 0 0 Cr. 0 30,600 35,000 b. Record the income tax journal entry on December 31 of Year 1, assuming that a new tax law is passed in Year 1 decreasing the tax rate to 20% for Year 1 and all years thereafter.
Financial Accounting Intro Concepts Meth/Uses
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ISBN:9781285595047
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Chapter12: Liabilities: Off-balance-sheet Financing, Retirement Benefits, And Income Taxes
Section: Chapter Questions
Problem 26E
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![Recording Multiple Temporary Differences, Change in Enacted Tax Rate
Wittco Company reports pretax GAAP income in Year 1, its first year of operations, of $350,000. Temporary differences in the
GAAP basis and tax basis of assets arose during the year from the following two sources.
Prepayment of Year 2 rent in the amount of $84,000 in Year 1.
• installment sale totaling $126,000, with cash collections expected in two equal amounts in Year 3 and Year 4.
The enacted tax rates are 25% in Year 1, 30% in Year 2, and 40% in Year 3 and thereafter.
Required
a. Record the income tax journal entry on December 31 of Year 1.
Date
Dec 31, Year 1 Income Tax Expense
Deferred Tax Liability
Income Tax Payable
To record income tax expense
Account Name
V
Dr.
65.600
0
0
Cr.
0
30.600
35,000
b. Record the income tax journal entry on December 31 of Year 1, assuming that a new tax law is passed in Year 1 decreasing the
tax rate to 20% for Year 1 and all years thereafter.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe82a368b-99ed-4f4c-a383-58c987270c59%2F016fef75-2230-4a56-8932-7e94c1ecf5d8%2Fhh9r4y_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Recording Multiple Temporary Differences, Change in Enacted Tax Rate
Wittco Company reports pretax GAAP income in Year 1, its first year of operations, of $350,000. Temporary differences in the
GAAP basis and tax basis of assets arose during the year from the following two sources.
Prepayment of Year 2 rent in the amount of $84,000 in Year 1.
• installment sale totaling $126,000, with cash collections expected in two equal amounts in Year 3 and Year 4.
The enacted tax rates are 25% in Year 1, 30% in Year 2, and 40% in Year 3 and thereafter.
Required
a. Record the income tax journal entry on December 31 of Year 1.
Date
Dec 31, Year 1 Income Tax Expense
Deferred Tax Liability
Income Tax Payable
To record income tax expense
Account Name
V
Dr.
65.600
0
0
Cr.
0
30.600
35,000
b. Record the income tax journal entry on December 31 of Year 1, assuming that a new tax law is passed in Year 1 decreasing the
tax rate to 20% for Year 1 and all years thereafter.
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