Question

Sheffield Corporation began 2017 with a $98,000 balance in the Deferred Tax Liability account. At the end of 2017, the related cumulative temporary difference amounts to $324,200, and it will reverse evenly over the next 2 years. Pretax accounting income for 2017 is $493,800, the tax rate for all years is 40%, and taxable income for 2017 is $414,600.

Compute income taxes payable for 2017.

Income taxes payable

$

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (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

Prepare the income tax expense section of the income statement for 2017 beginning with the line “Income before income taxes.”. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Sheffield Corporation Income Statement (Partial) December 31, 2017For the Year Ended December 31, 2017For the Quarter Ended December 31, 2017
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
Current    Deferred    Dividends    Expenses    Income before Income Taxes    Income Tax Expense    Net Income / (Loss)    Retained Earnings, January 1    Retained Earnings, December 31    Revenues    Total Expenses    Total Revenues	$
Current    Deferred    Dividends    Expenses    Income before Income Taxes    Income Tax Expense    Net Income / (Loss)    Retained Earnings, January 1    Retained Earnings, December 31    Revenues    Total Expenses    Total Revenues
CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$

Answer 1

Temporary difference arising during 2017 giving rise to future taxable amounts	79200	=324200-(98000/40%)
1
Taxable income	414600
X Tax rate	40%
Income taxes payable	165840
2
Account Titles and Explanation	Debit	Credit
Income tax expense	197520
Deferred tax liability		31680	=79200*40%
Income taxes payable		165840
3
Income Statement (Partial)
For the year ended December 31, 2017
Income before income taxes		493800
Income tax expense
Current	165840
Deferred	31680
		197520
Net income/(loss)		296280