A company reports pretax accounting income of $10 million, but because of a single temporary difference, taxable income is $12 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%. Prepare the appropriate journal entry to record income taxes.

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Business

Aspen Schmidt

4 April, 23:08

A company reports pretax accounting income of $10 million, but because of a single temporary difference, taxable income is $12 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%. Prepare the appropriate journal entry to record income taxes.

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Yasmin Shepherd · Answer 1

Answer: Journal entry : -

Income tax expense A/C Dr. $4,000,000

Deferred tax asset A/C Dr. $800,000

To income tax payable $4,800,000

Explanation: Above figures are computed as follows : -

Income tax expense = (10 million) * (40%) = $4,000,000

Deferred tax asset = (12 million - 10 million) * (40%) = $800,000

Income tax payable = (12 million) * (40%) = $4,800,000