Question

J-Matt, Inc., had pretax accounting income of $291,000 and taxable income of $300,000 in 2021. The only difference between accounting and taxable income is estimated product warranty costs of $9,000 for sales in 2021. Warranty payments are expected to be in equal amounts over the next three years (2022–2024) and will be tax deductible at that time. The tax rate is 30% for all the years.

Required:

Determine the amounts necessary to record J-Matt’s income taxes for 2021 and prepare the appropriate journal entry for 2021.

Answer 1

Date	Account Titles	Debit	Credit
		$	$
Dec 31, 2021	Income Tax Expense	87,300
	Deferred Tax Asset ( 9,000 * 30 % )	2,700
	Income Tax Payable ( 300,000 x 30 % )		90,000

Workings:

	Current Year	Future Deductible Amounts			Total
	2021	2022	2023	2024
Pretax Accounting Income	$ 291,000
Temporary Difference
Warranty Expense	9,000	3,000	3,000	3,000
Taxable Income	300,000
Enacted Tax Rate	30 %	30 %	30 %	30 %
Tax Payable Currently	90,000				90,000
Deferred Tax Asset		900	900	900	2,700