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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Deferred Taxes: Multiple Rates Wicks Corporation began operations on January 1, 2019. At the end of 2019, Wicks reported pretax financial income of $60,000 and taxable income of $57,700, due to two temporary differences. The income tax rate is 30% for 2019 through 2021, but Congress has enacted a tax rate of 35% for 2022 and beyond. To determine its deferred taxes, Wicks prepared the following schedule of expected future taxable and deductible amounts for the two temporary differences:
Required:
- 1. Prepare Wicks’s income tax journal entry at the end of 2019. Assume a valuation allowance is not required.
- 2. Prepare the lower portion of the 2019 income statement for Wicks.
1.
Prepare journal to record the entry for income tax of Corporation W at the end of 2019.
Deferred tax asset When the Income Tax Expense account is more than the Income Tax Payable account, this difference is known as Deferred Tax Asset.
Deferred tax liability When the Income Tax Expense account is less than the Income Tax Payable account, this difference is known as Deferred Tax Liability.
Prepare journal to record the entry for income tax of Corporation W 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 (balancing figure) | Â | $17,660 | Â |
| Â | Deferred tax asset (1) | Â | $5,425 | Â |
| Â | Â Â Â Â Income tax payable (2) | Â | Â | $17,310 |
| Â | Â Deferred tax liability (3) | Â | Â | $5,775 |
| Â | (To record the income tax payable) | 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.
- Deferred tax asset is an asset 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...
2.
Prepare the lower portion of Corporation W’s income statement.
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