Question

# Information pertaining Juniper Corporation is available for the year ended 2015, its first year of operations:...

Information pertaining Juniper Corporation is available for the year ended 2015, its first year of operations: :

Pretax financial income, \$200,000.

Excess of tax deprecation over book depreciation equals \$36,000 in 2015 (future taxable). This temporary difference (i.e., \$36,000 depreciation expense) will be reversed as follows: \$23,000 in 2016 and \$13,000 in 2017.

The tax rates of 2015, 2016 and 2017 are 30%, 25%, and 25%, respectively.

Instructions:

(a) Compute Juniper’s 2015 taxable income.

(b) Prepare a schedule to show the derivation of the deferred tax liability at the end of 2015.

(c) Prepare the journal entry to record income tax expense, deferred income tax liability, and income taxes payable of Juniper for 2015.

Formula sheet

 A B C D E F 2 3 A deferred tax liability is created due to difference between taxable income and accounting income. 4 Current year deferred tax liability is calculating assuming the current tax rate and it is adjusted in future if tax rate changes. 5 6 Pretax financial income 200000 7 Excess of depreciation over book depreciation 36000 8 9 a) 10 11 Assuming that pretax financial inocme is as per the tax return. 12 The taxable income as per book will be higher than income as per tax return 13 as depreciation as per book is lower than the tax depreciation. 14 15 Pretax financial income 200000 16 Add: Excess of depreciation over book depreciation 36000 17 Taxable income =D15+D16 =D15+D16 18 19 b) 20 21 Deferred tax liability is calculated as follows: 22 Deferred tax liability = Excess of depreciation over book depreciation*Current Year Tax rate 23 =36000*30% 24 =36000*30% 25 26 Hence Deferred Tax Liability is =D24 27 28 c) 29 30 Current Tax expense will be calculated using the taxable income as per tax return. 31 32 Pretax financial income 200000 33 Tax Rate 0.3 34 Income Tax expense- current =D32*D33 =D32*D33 35 36 Deferred tax liability =D26 37 38 Deferred Tax Liability Journal Entry: 39 Account Debit Credit 40 Tax Expense-current =D34 41 Tax Expense-Deferred =D36 42 Income Tax Payable =D40 43 Deferred Tax Liability =D41 44

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