North Dakota Corporation began operations in January 2020 and
purchased a machine for $25,000. North Dakota uses straight-line
depreciation over a four-year period for financial reporting
purposes. For tax purposes, the deduction is 40% of cost in 2020,
30% in 2021, and 30% in 2022. Pretax accounting income for 2020 was
$155,000, which includes interest revenue of $22,500 from municipal
bonds. The enacted tax rate is 30% for all years. There are no
other differences between accounting and taxable income.
Required:
Prepare a journal entry to record income taxes for the year 2020.
(If no entry is required for a transaction/event, select
"No journal entry required" in the first account
field.)
General Journal | Debit | Credit | |
Income tax expense | 39750 | ||
Deferred Tax liability | 1125 | =3750*30% | |
Income tax payable | 38625 | =128750*30% | |
Workings: | |||
Depreciation for tax purposes | 10000 | =25000*40% | |
Less: Book Depreciation | 6250 | =25000/4 | |
Excess tax depreciation | 3750 | ||
Pretax accounting income | 155000 | ||
Less: Excess tax depreciation | 3750 | ||
Less: interest revenue | 22500 | ||
Taxable income | 128750 |
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