Question

Mocha-Cola has determined its tax liabilities for the year ending December 31, 2020. It estimates that...

Mocha-Cola has determined its tax liabilities for the year ending December 31, 2020. It estimates that its current taxes payable are $4,500,000. In addition, it will owe $500,000 of taxes in the year 2021 and 2022 related to income earned in 2020. The $500,000 is not payable this year because Mocha-Cola, deducts a higher amount of depreciation in 2020 for tax purposes, than it does for financial reporting purposes.

Assets

=

Liabilities

+

Stockholders’ Equity

Business   Accounting   
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Answer #1

The journal entry and effect on the accounting equation will be as under:

General Journal Accounting Equation
Account Debit Credit Assets Liabilities Equity
Income tax expense 5000000 -5000000
Income tax payable (current tax payable) 4500000 4500000
Deferred tax liability (future tax payable) 500000 500000

Thus, the accounting equation is:

Assets = Liabilities + Stockholders' Equity
4500000 -5000000
500000
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