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14 April, 06:27

The following information is available for Wenger Corporation:

1. Excess of tax depreciation over book depreciation, $43,800. This $43,800 difference will reverse equally over the years 2020-2023.

2. Deferral, for book purposes, of $18,100 of rent received in advance. The rent will be recognized in 2020.

3. Pretax financial income, $302,100.

4. Tax rate for all years, 20%.

Instructions:

(a) Compute taxable income for 2019.

(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019.

(c) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming taxable income is $325,000.

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Answers (2)
  1. 14 April, 06:38
    0
    a) taxable income $276,400

    b and c Journal entries prepared in the explanation

    Explanation:

    The first part is to compute the taxable income for 2019 as follows:

    Description Amount

    Pretax financial income for 2010 302,100

    Subtract: Tax dep. excess over book dep. (43,800)

    Add: Rent received in advance 18,100

    Taxable income 276,400‬

    B) Prepare the journal entry fro 2019 to record income tax expense, deferred income taxes and income taxes payable for 2019

    Date Description Debit Credit

    2019 Income tax ex. (302,100 x 20%) 60,420

    Deferred tax (18,100 x 20%) 3,620

    Deferred tax liability (43,800 x20%) 8,760

    Income tax payable (276,400 x 20%) 55,280‬

    Being the record of income tax expense, deferred tax income taxes and income tax payable

    c) Prepare the journal entry fro 2020 to record income tax expense, deferred income taxes and income taxes payable for 2019

    Date Description Debit Credit

    2020 Income tax ex. (60,420 + 3,620-2,190) 61,850

    Deferred tax liab. (43,800/4 yearsx 20%) 2,190

    Deferred tax Asset (18,100 x20%) 3,620

    Income tax payable (325,000 x 20%) 65,000

    Being the record of income tax expense, deferred tax income taxes and income tax payable
  2. 14 April, 06:42
    0
    The taxable income for 2019 is $276,000.

    Explanation:

    (a) Calculation of taxable income for 2019:

    Pretax financial income $302,100

    Less: Excess of tax depreciation over book depreciation ($43,800)

    Add: Rent received in advance $18,100

    Taxable income for 2019 $276,400

    (b) Journal entries for 2019: Debit ($) Credit ($)

    Income tax expense ($302,100 x 20%) 60,420

    Deferred tax asset ($18,100 x 20%) 3,620

    Deferred tax liability ($43,800 x 20%) 8,760

    Income tax payable ($276,400 x 20%) 56,800

    Recording of income tax expense, deferred income taxes, and income taxes payable for 2019.

    (c) Journal entries for 2020:

    Income tax expense (65,000 + 3,620 - 2,190) 66,430

    Deferred tax asset ($43,800 x 20% / 4) 2,190

    Deferred tax liability ($18,100 x 20%) 3,620

    Income tax payable ($325,000 x 20%) 65,000

    Recording of income tax expense, deferred income taxes, and income taxes payable for 2020.
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