Question

North Dakota Corporation began operations in January 2020 and purchased a machine for $16,000. North Dakota uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2020, 30% in 2021, and 20% in 2022. Pretax accounting income for 2020 was $146,000, which includes interest revenue of $18,000 from municipal bonds. The enacted tax rate is 30% for all years. There are no other differences between accounting and taxable income.

Required:
Prepare a journal entry to record income taxes for the year 2020.

Answer 1

Solution:

Taxable income for 2020 = Pretax accounting income - Interest revenue on municipal bonds + Depreciation as per books - Depreciation as per tax

= $146,000 - $18,000 + ($16,000/4) - ($16,000*50%)

= $124,000

Journal Entries
Date	Particulars	Debit	Credit
31-Dec-20	Income tax expense Dr	$38,400.00
	To Income taxes payable ($124,000*30%)		$37,200.00
	To Deferred tax liability ($4,000*30%)		$1,200.00
	(To record income tax expense for the year)