The following facts relate to Krung Thep Corporation. 1. Deferred tax liability, January 1, 2017, \(40,000. 2. Deferred tax asset, January 1, 2017, \)0. 3. Taxable income for 2017, \(95,000. 4. Pretax financial income for 2017, \)200,000. 5. Cumulative temporary difference at December 31, 2017, giving rise to future taxable amounts, \(240,000. 6. Cumulative temporary difference at December 31, 2017, giving rise to future deductible amounts, \)35,000. 7. Tax rate for all years, 40%. 8. The company is expected to operate profitably in the future. Instructions (a) Compute income taxes payable for 2017. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (c) Prepare the income tax expense section of the income statement for 2017, beginning with the line “Income before income taxes.”

Step by step solution

01

(a) Calculation of income taxes payable for 2017

Particulars	Amount
Taxable income	$95,000
Multiply: Tax rate	40%
Income tax payable	$38,000

02

Computation of the amount of deferred tax asset or liability following with the amount of income tax expense for the year 2017

Temporary difference	Taxable amount	Tax rate	Deferred tax asset	Deferred tax liability
First	$240,000	40%		$96,000
Second	($35,000)	40%	($14,000)
Total			($14,000)	$96,000

Particulars	Amount
Deferred tax expense for 2017	$56,000
Add: Deferred tax benefit	($14,000)
Net deferred tax benefit	$42,000
Add: Current tax expense	$38,000
Income tax expense for 2017	$80,000

03

(b) Recording of the journal entry

Date	Particulars	Debit	Credit
2017	Income tax expense	$80,000
	Deferred tax asset	$14,000
	Income tax payable		$38,000
	Deferred tax liability		$56,000
	(To record the income tax expense)

04

(c) Preparation of the income statement

Income Statement
Particulars		Amount
Income before income tax		$200,000
Less: Income tax expense
Current tax expense	$38,000
Deferred tax expense	$42,000	$80,000
Net Income		$120,000

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