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Chapter 19: Question 3BE (page 1093)

Using the information from BE19-2, assume this is the only difference between Oxford’s pretax financial income and taxable income. Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable, and show how the deferred tax liability will be classified on the December 31, 2017, balance sheet.

Short Answer

Expert verified

Income taxis the amount oftax levied on the total earned incomeof anindividual or a firm. The total tax amount ispayable to the government,further used foreconomic development.

Step by step solution

01

Computation of income tax payable, deferred tax liability, and income tax expense for 2017

IncomeTaxpayable=(Pretaxfinancialincome-ExcessDepreciation)×TaxRate=($225,000-$40,000)×30%=$185,000×30%=$55,500

role="math" localid="1648202959036" DeferredTaxLiability=ExcessDepreciation×TaxRate=$40,000×30%=$12,000

IncomeTaxexpense=Incometaxespayable+Deferredtaxliability=$55,500+$12,000=$67,500

02

Journal entries

Oxford Corporation
Journal Entry

Date

Particulars

Debit

Credit

2017

Income tax expense

$67,500

Deferred tax liability

$12,000

Income tax payable

$55,500

(To record the income tax expense)

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Most popular questions from this chapter

The book basis of depreciable assets for Erwin Co. is \(900,000, and the tax basis is \)700,000 at the end of 2018. The enacted tax rate is 34% for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2018.

At December 31, 2017, Hillyard Corporation has a deferred tax asset of \(200,000. After a careful review of all available evidence, it is determined that it is more likely than not that \)60,000 of this deferred tax asset will not be realized. Prepare the necessary journal entry.

At December 31, 2017, Cascade Company had a net deferred tax liability of \(450,000. An explanation of the items that compose this balance is as follows.

Temporary Differences in Deferred Taxes

Resulting Balances

1. Excess of tax depreciation over book depreciation.

\)200,000

2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2018. The loss will be deducted on the tax return when paid.

\( (50,000)

3. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment.

\)300,000

In analyzing the temporary differences, you find that \(30,000 of the depreciation temporary difference will reverse in 2018, and \)120,000 of the temporary difference due to the installment sale will reverse in 2018. The tax rate for all years is 40%.

Instructions

Indicate the manner in which deferred taxes should be presented on Cascade Company’s December 31, 2017, statement of financial position.

What are the possible treatments for tax purposes of a net operating loss? What are the circumstances that determine the option to be applied? What is the proper treatment of a net operating loss for financial reporting purposes?

Oxford Corporation began operations in 2017 and reported pretax financial income of \(225,000 for the year. Oxford’s tax depreciation exceeded its book depreciation by \)40,000. Oxford’s tax rate for 2017 and years thereafter is 30%. In its December 31, 2017, balance sheet, what amount of deferred tax liability should be reported?
See all solutions

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