In 2013, Reno collected rent revenue of $50 for 2014 tenant occupancy. For financial reporting the rent collected in advanced is recorded as unearned rent revenue, but for tax purposes the prepaid rent is reported as taxable income. Taxable income is $180, and the tax rate is 21% and there were no other temporary differences.
A) Prepare a journal entry to record the tax provision for the year.
Journal entry to record the tax provision for the year -
Debit Credit
Income tax expense $37.8
Deferred tax asset $10.5
Income tax payable $48.3
Note =
Since, tax payable in advance on unearned rent , so deferred tax asset is created.
Current tax is = $180 × 21% = $37.8
Deferred tax asset = $50 × 21% = $10.5
Total provision = $48.3
When provision for tax is created, income tax payable account is credited. For current tax, income tax expense account is debited and for tax on deferred tax asset, deferred tax asset account is debited.
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