Question

Monty Corporation began operations in 2020 and reported pretax financial income of $228,000 for the year. Monty’s tax depreciation exceeded its book depreciation by $38,000. Monty’s tax rate for 2020 and years thereafter is 30%. Assume this is the only difference between Monty’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.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

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.

Answer 1

1)

Income tax expense Dr 68400

To Income Tax Payable 68400

(Being income tax expense recorded in the books for December 2020)

Since Taxable depreciation exceeds book depreciation the profit as per tax will be less hence deferred tax liability

To Profit and Loss Account 11400

Deferred Tax Liability Dr 11400

( Being deferred tax on the depreciation differece of 38000 into the tax rate of 30%)

2). Deferred tax assets and liabilities should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities.