Question

The differences between the book basis and tax basis of the assets and liabilities of Ayayai Corporation at the end of 2019 are presented below.

		Book Basis		Tax Basis
Accounts receivable		$47,600		$-0-
Litigation liability		32,300		-0-

It is estimated that the litigation liability will be settled in 2020. The difference in accounts receivable will result in taxable amounts of $27,300 in 2020 and $20,300 in 2021. The company has taxable income of $319,000 in 2019 and is expected to have taxable income in each of the following 2 years. Its enacted tax rate is 34% for all years. This is the company’s first year of operations. The operating cycle of the business is 2 years.

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

Answer 1

Answer
Journal entry
No.	Account Titles and Explanations	Debit	Credit
1	Income Tax Expense	$    1,13,662
	Deferred Tax Asset ($32,300 x 34%)	$       10,982
	To, Income Tax Payable ($319,000 x 34%)		$    1,08,460
	To, Deferred Tax Liability ($47,600 x 34%)		$       16,184
	(To record income tax expenses)
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