Question

Example Question #1
You are the new accounting manager at the Barry Transport Company. Your CFO has asked you to provide input on the company's income tax position based on the following:

1. Pretax accounting income was $42 million and taxable income was $8 million for the year ended December 31, 2021.
2. The difference was due to three items:

1. Tax depreciation exceeds book depreciation by $30 million in 2021 for the business complex acquired that year. This amount is scheduled to be $50 million in 2022 and to reverse as ($40 million) and ($40 million) in 2023 and 2024, respectively.
2. Insurance of $10 million was paid in 2021 for 2022 coverage.
3. A $6 million loss contingency was accrued in 2021, to be paid in 2023.

3. No temporary differences existed at the beginning of 2021.
4. The tax rate is 25%.

Required:
1. Determine the amounts necessary to record income taxes for 2021 and prepare the appropriate journal entry.

2. Determine the amounts necessary to record income taxes for 2022 and prepare the appropriate journal entry, if taxable income in 2022 is $12 million.
3. Assume the enacted federal income tax law specifies that the tax rate will change from 25% to 20% in 2023.

Answer 1

1)
Date	Particulars	Debit ($)	Credit($)
2021	Income tax expense	10.5
	Deferred tax asset	1.5
	Deferred tax liability		10
	Income tax payable		2
2)
Date	Particulars	Debit ($)	Credit($)
2022	Income tax expense	13
	Deferred tax liability		10
	Income tax payable		3

3)

Additional data is required to solve this question.