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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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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:

Chapter 18, Problem 5P, Deferred Taxes: Multiple Rates Wicks Corporation began operations on January 1, 2019. At the end of

Required:

  1. 1. Prepare Wicks’s income tax journal entry at the end of 2019. Assume a valuation allowance is not required.
  2. 2. Prepare the lower portion of the 2019 income statement for Wicks.

1.

To determine

Prepare journal to record the entry for income tax of Corporation W at the end of 2019.

Explanation

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:

DateAccount title and ExplanationPost ref.Amount
DebitCredit
2019    
December 31Income tax expense (balancing figure) $17,660 
 Deferred tax asset (1) $5,425 
     Income tax payable (2)  $17,310
  Deferred tax liability (3)  $5,775
 (To record the income tax payable)   

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.

To determine

Prepare the lower portion of Corporation W’s income statement.

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