Question

Zurich Inc. reports pretax financial income of $70,000 in 2017. The following items cause taxable income to be different from pretax financial income: a. Depreciation on the tax return is greater than the depreciation on the income statement by $16,000. b. Rent collected and reported on the tax return is greater than rent recognized on the income statement by $22,000 c. Fines for pollution appear as an expense of $11,000 on the income statement. Zurich’s tax rate is 30% for all years and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2017.

Required:

1. Determine the taxable income for 2017?

2. Determine the deferred tax asset for 2017?

3. Determine the deferred tax liability for 2017?

4. Record the journal entry for income tax expense for 2017?

Answer 1

a	Compute Income taxes payable for 2014
	Pretax financial income	$70,000
	Excess depreciation per tax return	($16,000)
	Excess rent collected over rent earned	$22,000
	Non deductible fines	$11,000
	Taxable Income	$87,000
	Enacted tax rate	30%
	Income tax Payable	$26,100

b. Deferred tax asset:

$22000*30% = $6,600

C. Deferred tax liability

$16000*30% = $4,800

D.

b	Prepare a journal entry to record income tax expense
	General description	Debit	credit
	Income tax expense	$24,300
	Deferred tax asset (22000*30%)	$6,600
	Income tax Payable		$26,100
	Deferred tax liability (16000*30%)		$4,800