Question

Flint Corp. sold an investment on an installment basis. The total gain of $84,000 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment-sales method for tax purposes. The installment period is 3 years; one-third of the sale price is collected in the period of sale. The tax rate was 40% in 2017, and 35% in 2018 and 2019. The 35% tax rate was not enacted in law until 2018. The accounting and tax data for the 3 years is shown below.

Financial Accounting

Tax Return

2017 (40% tax rate)Income before temporary difference

$98,000

$98,000

Temporary difference

84,000

28,000

Income

$182,000

$126,000

2018 (35% tax rate)Income before temporary difference

$98,000

$98,000

Temporary difference

0

28,000

Income

$98,000

$126,000

2019 (35% tax rate)Income before temporary difference

$98,000

$98,000

Temporary difference

0

28,000

Income

$98,000

$126,000

Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable at the end of each year. No deferred income taxes existed at the beginning of 2017

Answer 1

Answer :-

Journal entries :-

Date	Account titles and explanation	Debit	Credit
2017	Income tax expense [ $182,000 * 40% ]	$72,800
	Income tax payable [ $126,000 * 40% ]		$50,400
	Deferred tax liability [ $72,800 - $50,400 ]		$22,400
2018	Deferred tax liability [ 56,000 * [ 40% - 35% ] ]	$2,800
	Income tax expense		$2,800
	Income tax expense [ $98,000 * 35% ]	$34,300
	Deferred tax liability [ $44,100 - $34,300 ]	$9,800
	Income tax payable [ $126,000 * 35% ]		$44,100
2019	Income tax expense [ $44,100 + $9,800 ]	$53,900
	Deferred tax asset  [ $44,100 - [ $98,000 * 35% ] ]		$9,800
	Income tax payable [ $126,000 * 35% ]		$44,100