Question

Rowen, Inc. had pre-tax accounting income of $180,000 and a tax rate of 21% in 2019, its first year of operations. During 2019 the company had the following transactions:

Received rent from Jane, Co. for 2020 $64,000

Municipal bond income $80,000
Prepaid insurance was purchased during 2019 $40,000

a. For 2019, Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable?

b. For 2019, prepare the income tax expense section of the income statement, beginning with the line “Income before Income Taxes?

Answer 1

a)

Calculation of Taxable Income :

Pre -Tax accounting	180000
Add: Received rent from Jane, Co	64000
Less: Municipal bond income (exempt for tax purpose)	-80000
less:Prepaid insurance	-40000
Taxable income	124000

For Tax purpose ,income is taxable at the time cash is received and expense is deductible at the time is cash is paid.

For accounting purpose ,Income is taxable at the time is income is earned and expense is deductible at the time expense is incurred.

Date	Account title	debit	credit
2019	Income tax expense (180000*21%)	37800
	Deferred tax liability		11760
	Income tax payable (124000*21%)		26040

b)

Rowen, Inc income statement for the year ended 2019
Income before income taxes		180000
Less:Income tax expense
current tax expense	26040
Deferred tax liability	11760
Total tax expense		(37800)
Net income		142200