Question

Question 25 10 pts Yellowtail Space began operations in 2016. The company sometimes sells used warehouses on an installment basis. In those cases, Yellowtail Space reports income in its income statement in the year of the sale. In its income tax return, though, Yellowtail Space reports installment income by the installment method. Installment income in 2016 was $90,000, which they expect to collect equally over the next three years (2017 - 2019). The tax rate in 2016 is 30%, but based on an enacted law, is scheduled to become 22% in 2018. Yellowtail Space's pretax accounting income from the 2016 income statement was $830,000, which includes $40,000 of interest revenue from an investment in municipal bonds. There were no differences between accounting income and taxable income other than those two described above. Required: Prepare the appropriate journal entry to record Yellowtail Space's 2017 income taxes. Show calculations.

Answer 1

	Current Year 2016	Future taxable amounts
		2017	2018	2019
Accounting income	830,000
Permanent difference	(40,000)
Temporary difference:
Installment sales	(90,000)	30,000	30,000	30,000
Taxable income	700,000
Enacted tax rate	30%	30%	22%	22%
Tax payable currently (700,000*30%)	210,000
Deferred tax liability (Installment sales * Enacted tax rate)		9,000	6,600	6,600	22,200
Less beginning balance					0
Change in balance: credit (debit)					22,200

Journal Entries:

Account Name	Debit	Credit
Income tax expense	232,200
Deferred tax liability		22,200
Income tax payable		210,000