Shetland Inc. had pretax financial income of $154,000 in 2017. Included in the computation of that amount is insurance expense of $4,000 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $10,000. Prepare Shetland's journal entry to record 2017 taxes, assuming a tax rate of 45%.

The journal entry is shown below:

Income tax expense A/c Dr $71,100

To Income tax payable $666,00

To Deferred tax liability $4,500

(Being income tax expense is recorded)

The computation of income tax payable is shown below:

= (Pretax financial income + insurance expense - depreciation expense) * tax rate

= ($154,000 + $4,000 - $10,000) * 45%

= $148,000 * 45%

= $66,600

And, the differed tax liability equal to

= Depreciation expense * tax rate

= $10,000 * 45%

= $4,500