Question

During 2017, Windsor Co.’s first year of operations, the company reports pretax financial income at $274,600. Windsor’s enacted tax rate is 45% for 2017 and 40% for all later years. Windsor expects to have taxable income in each of the next 5 years. The effects on future tax returns of temporary differences existing at December 31, 2017, are summarized as follows. Future Years 2018 2019 2020 2021 2022 Total Future taxable (deductible) amounts: Installment sales $32,500 $32,500 $32,500 $97,500 Depreciation 6,000 6,000 6,000 $6,000 $6,000 30,000 Unearned rent (49,100 ) (49,100 ) (98,200 ) Complete the schedule below to compute deferred taxes at December 31, 2017. Deferred Tax Temporary Difference Future Taxable (Deductible) Amounts Tax Rate (Asset) Liability Installment sales $97,500 % $ $ Depreciation 30,000 % $ $ Unearned rent (98,200 ) % $ Totals $ $ $ Compute taxable income for 2017. Taxable income for 2017 $ Prepare the journal entry to record income taxes payable, deferred taxes, and income tax expense for 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

Answer

1.

Deferred Tax at Dec 31.2017

Temporary Differernce	Taxable/(Deductible)	Tax rate	Asset(Deferred Tax)	Liability(Deferred Tax)
Installment Sales	$97,500	40%		39000
Depreciation	$30,000	40%		12000
Unearned Rent	($98,200 )	40%	(39280)
Total Deferred Tax			(39280)	51000

2.

Taxable income for 2017:

Particulars	Amount
Pretax Financial Income	$274600
Less: Temporary Sales	($97500)
Less: Depreciation	($30000)
Add: Unearned Rent	$98200
Taxable Income for 2017	$245300

3.Journal Entry:

Date	Particulars	Dr	Cr
December 31, 2017	Income Tax Expense (bf)	$122105
	Deferred Tax Asset	$39280
	Income Tax Payable		$51000
	Deferred Tax Liability (245300*45%)		$110385