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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Future Deductible Amount Pito Company has been in operation for several years. During those years, the company has been profitable and it expects to continue to be profitable in the foreseeable future. At the beginning of 2019, Pito has a deferred tax asset of $360 pertaining to one future deductible amount. During 2019, Pito earned taxable income of $51,000 which was taxed at a rate of 30% (no change in the tax rate has been enacted for future years). At the end of 2019, the book value of the current liability to which the deferred tax asset relates for financial reporting purposes exceeded the book value for income tax purposes by $6,000.

Required:

  1. 1. Prepare Pito’s income tax journal entry at the end of 2019.
  2. 2. Show how the deferred tax asset is reported on Pito’s December 31, 2019, balance sheet.

1.

To determine

Prepare journal to record the entry for income tax of Company P at the end of year.

Explanation

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.

Prepare journal to record the entry for income tax of Company P at the end of 2019:

DateAccount title and ExplanationPost ref. Amount
DebitCredit
2019    
December 31Income tax expense (balancing figure) $13,860 
 Deferred tax asset (2) $1,440 
     Income tax payable (1)  $15,300
 (To record the income tax payable)   

Table (1)

  • Income tax expense is an expense that decreases the stockholder’s equity and it is increased...

2.

To determine

Explain the manner of reporting the deferred tax in the balance sheet of Company P.

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