Question

North Dakota Corporation began operations in January 2017 and purchased a machine for $10,000. North Dakota uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 60% of cost in 2017, 20% in 2018, and 20% in 2019. Pretax accounting income for 2017 was $140,000, which includes interest revenue of $15,000 from municipal bonds. The enacted tax rate is 30% for all years. There are no other differences between accounting and taxable income.

Required:
Prepare a journal entry to record income taxes for the year 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

NORTH DAKOTA CORPORATION -

PURCHASED A MACHINE FOR - $10,000

NORTH DAKOTA USES STRAIGHT LINE DEPRECIATION OVER A 4 YEAR PERIOD

ACCOUNTING INCOME IN 2017 WAS - $140,000 WHICH INCLUDES INTEREST REVENUE $15000

JOURNAL ENTRY -

DATE	PARTICULAR	DEBIT	CREDIT
	INCOME TAX EXPENSES	37,500
	TO DEFERRED TAX LIABILITY		1050
	TO INCOME TAX PAYABLE		36,450

WORKING NOTES -

EXCESS DEPRECIATION = (10000*60%)-(10,000/4) =$3500

DEFERRED TAX LIABILITY= $3500*30%=$1050

INCOME TAX PAYABLE = ($140,000-15000-3500)*30% =$36450