Question

In 2018, Ryan Management collected rent revenue for future tenant occupancy. The deferred portion of the rent collected in 2018 was $20 million. The revenue was to be earned evenly over the subsequent two years (2019 and 2020). For 2019, taxable income is $170 million. No temporary differences existed at the beginning of 2019. The tax rate assumed for all years is 40%. Prepare the appropriate journal entry to record income taxes in 2019.

Answer 1

As per income tax the revenue is taxed when it is received and as per financial reporting it is charged as the tenant occupies the rental property which creates temporary difference

Since as per income tax the tax would be paid higher there would be deferred tax asset

Therefore the journal entry would be as follows

In Millions

Date

Particulars

Debit

Credit

2019

Income tax expense

$64

Deferred tax asset

$4

Income tax payable

$68

(To record tax expense)

Income tax payable = (170*40%)

$68

million

Rent for 2019 (20/2)*40%

$4

million

Income tax expense (68-4)

$64

million