Question

The information that follows pertains to Redd Company:

Temporary differences for the year 2016 are summarized below.

Expenses deducted in the tax return, but not included in the income statement:

Depreciation - $60,000

Prepaid expense - $8,000

Expenses reported in the income statement, but not deducted in the tax return:

Warranty expense - $9,000

No temporary differences existed at the beginning of 2016.

Pretax accounting income was $67,000.

The tax rate is 30%.

Required:

Prepare the journal entry to record the tax provision for 2016.

Answer 1

Solution:

Computation of Taxable Income and Deferred taxes
Particulars	Amount
Pre tax accounting income	$67,000.00
Less: Taxable Temporary differences:
Depreciation	$60,000.00
Prepaid Expenses	$8,000.00
Add: Deductible temporary differences:
Warranty Expense	$9,000.00
Taxable Income	$8,000.00
Tax rate	30%
Income tax payable	$2,400.00
Deferred tax liability ($68,000*30%)	$20,400.00
Deferred tax assets ($9,000*30%)	$2,700.00

Journal Entries - Redd Company
Event	Particulars	Debit	Credit
a	Income tax expense Dr	$20,100.00
	Deferred tax assets Dr	$2,700.00
	To Income taxes payable		$2,400.00
	To Deferred tax liability		$20,400.00
	(To record income tax expense and deferrred tax)