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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Change in Tax Rates At the end of 2019, Sentry Company reported a deferred tax liability of $6,120 based on an income tax rate of 30%. On January 2, 2020, Congress changed the income tax rate to 35%.
Required:
- 1. Calculate the amount of the adjustment to Sentry’s 2019 year-end deferred tax liability.
- 2. Prepare the journal entry to correct Sentry’s deferred tax liability.
1.
Compute the amount of adjustment to the year-end deferred tax liability of Company S.
Temporary Difference: Temporary difference refers to the difference of one income recognized by the tax rules and accounting rules of a company in different periods. Consequently the difference between the amount of assets and liabilities reported in the financial reports and the amount of assets and liabilities as per the company’s tax records is known as temporary difference.
Compute the amount of adjustment to the year-end deferred tax liability of Company S:
In the current situation, Company S has reported a deferred tax liability of $6,120 which is based on the income tax rate of 30% in 2019. Hence, the taxable income of Company S in 2019 would be $20,400
2.
Record the journal entry to rectify the deferred tax liability of Company S.
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