Question

Eason Company began operations on January 1, 2007, and reported net income of $260,000 during the year. Eason had a taxable income of $350,000 for 2007. The difference between the reported net income and taxable income will reverse in 2008. The reported net income for 2008 was $405,000. There were no other temporary differences. The tax rate is 35% for both years. Prepare the journal entries to record the tax expense, deferred taxes, and taxes payable for 2007 and 2008, respectively.

Answer 1

Answer

• Journal entries

Date	Accounts title	Debit	Credit
2007	Income tax expense	$91,000
	Deferred Tax Assets	$31,500
	Income tax payable		$122,500
	(to record income taxes)
2008	Income tax expense	$141,750
	Deferred Tax Assets		$31,500
	Income tax payable		$110,250
	(to record income taxes)

• Workings

Working		2007	2008
A	Net Income	$260,000	$405,000
B = 350000 - 260000	Temporary difference	$90,000	($90,000)
C = A+B	Taxable Income	$350,000	$315,000
D	Tax rate	35%	35%
E = C x D	Income tax payable	$122,500	$110,250
F = B x D	Deferred Tax Assets created (reversed)	$31,500	($31,500)