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North Dakota Corporation began operations in January 2020 and purchased a machine for $25,000. North Dakota...

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.)

Homework Answers

Answer #1
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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