Question

In 2018, DFS Medical Supply collected rent revenue for 2019 tenant occupancy. For income tax reporting, the rent is taxed when collected. For financial statement reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy the rental property. The deferred portion of the rent collected in 2018 amounted to $480,000 at December 31, 2018. DFS had no temporary differences at the beginning of the year.

Required:
Assuming an income tax rate of 40% and 2018 income tax payable of $930,000, prepare the journal entry to record income taxes for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

Record 2018 income taxes.
  

Answer 1

Date	Particulars	Ref.	Debit	Credit
2018	Income Tax Expense Dr.		$738,000
	Deferred Tax Asset Dr.		$192,000
	To Income Tax payable			$930,000
	(To record the income tax provision for 2018)

Working Notes: Calculation of Deferred tax asset:

Deferred tax asset = Rent collected in 2018*Enacted tax rate

=> $480,000*40%

=>$192,000

Calculation of Income Tax expense:

Income tax expense = Income tax payable - Deferred tax asset

=> $930,000-$192,000

=>$738,000