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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Single Temporary Difference: Multiple Rates At the end of 2019, Fulhage Company reported taxable income of $9,000 and pretax financial income of $10,600. The difference is due to depreciation for tax purposes in excess of depreciation for financial reporting purposes. The income tax rate for the current year is 40%, but Congress has enacted tax rates of 35% for 2020 and 30% for 2021 and beyond.
Fulhage has calculated the excess of its financial depreciation over its tax depreciation for future years as follows: 2020, $600; 2021, $700; and 2022, $300. Prior to 2019, the company had no deferred tax liability or asset.
Required:
Prepare Fulhage’s income tax journal entry at the end of 2019.
Record the income tax journal entry of Company F at the end of 2019.
Income Tax Expenses: The expenses which are related to the taxable income of the individuals and business entities for an accounting period, and are recognized by them for the purpose of federal government and state government tax are called as income tax expenses.
Record the income tax journal entry of Company F at the end of 2019:
| Date | Account title and Explanation | Post ref. | Amount | |
| Debit | Credit | |||
| 2019 | Â | Â | Â | Â |
| December 31 | Income tax expense | Â | $4,110 | Â |
| Â | Â Â Â Â Income tax payable (1) | Â | Â | $3,600 |
| Â | Â Â Â Â Deferred tax liability (2) | Â | Â | $510 |
| Â | (To record the income tax at the year-end ) | Â | Â | Â |
Table (1)
- Income tax expense is an expense that decreases the stockholder’s equity and it is increased. Thus, it is debited.
- Income tax payable is a liability and it is increased. Thus, it is credited.
- Deferred tax liability is a liability and it is increased. Thus, it is credited...
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