Question

Conlin Corp. has one temporary difference at the end of 2019 that will reverse and cause taxable amounts as follows:

2020: 40000

2021: 47800

2022: 36100

Stark’s pretax financial income for 2019 is 5,392,000, tax 81% for all years.There are no differed taxes at the beginning of 2019.

Instructions

1 Compute taxable income and income tax payable for 2019.

2 Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019.

3 Prepare the income tax expense section of Income Statement for 2019, beginning with the line “Income before income taxes.”

Answer 1

Answer 1. Computation of taxable income and income tax payable for 2019.

Pretax financial income for 2019		$5,392,000
Less: Temporary difference resulting in future taxable amounts in the year:
2020	40,000
2021	47,800
2022	36,100	(123,900)
Taxable income for 2019		$5,268,100
* Tax rate		81%
Income tax payable for 2019		$4,267,161

Answer 2. Journal entry

Accounts Titles & Explanation	Debit	Credit
Income tax expense	4,367,520
Income tax payable		4,267,161
Deferred tax liability [(40,000 + 47,800 + 36,100) * 81%]		100,359
[To record  income tax expense, deferred income taxes, and income taxes payable]

Answer 3.

Income tax expense section of Income Statement for 2019

Income before income taxes		$5,392,000
Income tax expense
Current	4,267,161
Deferred	100,359	4,367,520
Net income after income taxes		$1,024,480