Question

3.. Haag Corp.'s 2021 income statement showed pretax accounting income of $2,500,000. To compute the federal income tax liability, the following 2021 data are provided: Income from exempt municipal bonds $ 100,000 Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes 200,000 Estimated federal income tax payments made 330,000 Enacted corporate income tax rate 20%

Prepare the accounting entry on Haag Corp’s books for 2021

Answer 1

Calculation of taxable income :

Pre tax accounting income	2,500,000
less:Income from exempt municipal bonds	-100,000
Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes	-200,000
Taxable Income	2,200,000
Tax liability (2200000*20%)	440000
Tax paid	(330000)
Tax payable	110000

Municipal bond interest is exempt for tax purpose thus it is a permanent difference and does not result in deferred taxasset /liability

Journal entry

Date	Account title	Debit	credit
12/31/2021	Income tax expense	480000
	Deferred tax (100000*20%)		40000
	Income tax payable		110000
	cash		330000
	[Being tax expense for the year 2021 recorded]