Question

Prepare the tax effect Journal Entries for the following independent situations and explain why each gives rise to a Deferred Tax Asset or a Deferred Tax Liability at June 2016.

Tax Rate is 30%.

Enter your answers in the grids provided.

1. A publishing company has received $20,000 of subscriptions in advance of publications. This revenue will be recognized in the accounting records over the next four years. This amount is treated as assessable income for income tax purposes.

Account		Debit	Credit
		$
			$
Explanation:

Answer 1

For Accounting purpose,Subscription revenue would be taxable over the next four years as income is taxable at the time income is earned whereas For Income tax purpose ,Subscription revenue is to be taxed today (as for income tax purpose ,income is taxable at the time cash is received.

Since Current period income tax expense (As per books) is less than Current period income tax paid (as per income tax) ,It will gives rise to Deferred tax asset .

Income as per books is less than Income as per Income tax .

Account	Debit	credit
Deferred tax asset (20000*30%)	6000
Income tax payable /Cash		6000