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Chapter 19: Question 11BE (page 1094)

At December 31, 2017, Fell Corporation had a deferred tax liability of \(680,000, resulting from future taxable amounts of \)2,000,000 and an enacted tax rate of 34%. In May 2018, a new income tax act is signed into law that raises the tax rate to 40% for 2018 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability.

Short Answer

Expert verified

Taxable amountis the type of amount an organization calculates aftersubtracting all of its deductions. Theeffective tax rateis implied on thetaxable amounttocalculate the tax.

Step by step solution

01

Computation of deferred tax liability

DeferredTaxLiability=Taxableincome×Differenceinthetaxrate=$2,000,000×(40%-34%)=$120,000

02

Journal entry

Fell Corporation
Journal Entry

Date

Particulars

Debit

Credit

2017

Income tax expense

$120,000

Deferred tax liability

$120,000

(To record the deferred tax liability)

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Most popular questions from this chapter

The following information is available for Wenger Corporation for 2016 (its first year of operations). 1. Excess of tax depreciation over book depreciation, \(40,000. This \)40,000 difference will reverse equally over the years 2017–2020. 2. Deferral, for book purposes, of \(20,000 of rent received in advance. The rent will be recognized in 2017. 3. Pretax financial income, \)300,000. 4. Tax rate for all years, 40%. Instructions (a) Compute taxable income for 2016. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (c) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $325,000.

Lee Company’s current income taxes payable related to its taxable income for 2017 is \(320,000. In addition, Lee’s deferred tax liability increased \)40,000 and its deferred tax asset increased $10,000 during 2017. What is Lee’s income tax expense for 2017?

Button Company has the following two temporary differences between its income tax expense and income taxes payable2017 2018 2019 Pretax financial income \(840,000 \)910,000 \(945,000 Excess depreciation expense on tax return (30,000) (40,000) (10,000) Excess warranty expense in financial income 20,000 10,000 8,000 Taxable income \)830,000 \(880,000 \)943,000 The income tax rate for all years is 40%. Instructions (a) Assuming there were no temporary differences prior to 2017, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, 2018, and 2019. (b) Indicate how deferred taxes will be reported on the 2019 balance sheet. Button’s product warranty is for 12 months. (c) Prepare the income tax expense section of the income statement for 2019, beginning with the line “Pretax financial income.”

At December 31, 2017, Appaloosa Corporation had a deferred tax liability of \(25,000. At December 31, 2018, the deferred tax liability is \)42,000. The corporation’s 2018 current tax expense is $48,000. What amount should Appaloosa report as total 2018 income tax expense?

(Explain Future Taxable and Deductible Amounts, How Carryback and Carryforward Affects Deferred Taxes) Maria Rodriquez and Lynette Kingston are discussing accounting for income taxes. They are currently studying a schedule of taxable and deductible amounts that will arise in the future as a result of existing temporary differences. The schedule is as follows.

Future Years

2017

2018

2019

2020

2021

Taxable income

\(850,000

Taxable amounts

\)375,000

\(375,000

\)375,000

$375,000

Deductible amounts

(2,400,000)

Enacted tax rate

50%

45%

40%

35%

30%

Instructions

  1. Explain the concept of future taxable amounts and future deductible amounts as illustrated in the schedule.
  2. How do the carryback and carryforward provisions affect the reporting of deferred tax assets and deferred tax liabilities?
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