Question

Headland Corporation began operations in 2020 and reported pretax financial income of $230,000 for the year....

Headland Corporation began operations in 2020 and reported pretax financial income of $230,000 for the year. Headland’s tax depreciation exceeded its book depreciation by $40,000. Headland’s tax rate for 2020 and years thereafter is 30%. Assume this is the only difference between Headland’s pretax financial income and taxable income.

Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Show how the deferred tax liability will be classified on the December 31, 2020, balance sheet.

Deferred tax liability should be classified as a select a balance sheet section                                                          current assetcurrent liabilitynoncurrent assetnoncurrent liability on the December 31, 2020, balance sheet.

Homework Answers

Answer #1

Since tax depreciation is higher, taxable income will be lower

Account Titles Debit Credit
Income Tax Expense $          69,000 =230000*30%
      Income Tax Payable $          57,000 =(230000-40000)*30%
      Deferred Tax Liability $          12,000 =40000*30%

Deferred Tax Liability is Non Current Liability

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