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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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Oliver Company earned taxable income of $7,500 during 2019, its first year of operations. A reconciliation of pretax financial income and taxable income indicated that an additional $2,500 of accelerated depreciation was deducted for tax purposes and that an estimated expense of $5,800 was deducted for financial reporting purposes. The estimated expense is not expected to be deductible for tax purposes until 2022, when the liability is paid. The current tax rate is 30%, and no change in the tax rate has been enacted for future years. The resulting journal entry for 2019 would be:

Chapter 18, Problem 6MC, Oliver Company earned taxable income of 7,500 during 2019, its first year of operations. A

To determine

Identify the appropriate journal entry for the transaction.

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 entry:

DateAccounts title and explanationPost Ref.DebitCredit
2019    
December 31Income tax payable  $1,260 
 Deferred tax asset (1) $1,740 
 Deferred tax liability (2)  $750
 Income taxes payable (3)  $2,250
 (To record the income tax payable)      

Table (2)

December 31, 2019: To record the income tax payable:

  • 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...

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