Question

In 2018, DFS Medical Supply collected rent revenue for 2019 tenant occupancy. For income tax reporting, the rent is taxed when collected. For financial statement reporting, the rent is recorded as deferred revenue and then recognized as income in the period tenants occupy the rental property. The deferred portion of the rent collected in 2018 amounted to $490,000 at December 31, 2018. DFS had no temporary differences at the beginning of the year. Required: Assuming an income tax rate of 40% and 2018 income tax payable of $940,000, prepare the journal entry to record income taxes for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

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Since Tax Payable is $940000 @ 40%, Taxable income will be	$         2,350,000
Only Temporary difference is Rent $490000, which is being recognized for tax but not for Books.
Hence Pre-Tax Accounting income will be	2350000-490000	$ 1,860,000
Journal Entry will be:
Account	Debit	Credit
Income Tax Expense 1860000*40%	$             744,000
Deferred Tax Asset 490000*40%	$             196,000
Income Tax Payable		$     940,000