Question

E19.22 (LO1,4) (Two Differences, One Rate, First Year) The differences between the book basis and tax basis of the assets and liabilities of Morgan Corporation at the end of 2019 are presented below. Book Basis Tax Basis Accounts receivable $50,000 $–0– Litigation liability  20,000  –0– It is estimated that the litigation liability will be settled in 2020. The difference in accounts receivable will result in taxable amounts of $30,000 in 2020 and $20,000 in 2021. The company has taxable income of $300,000 in 2019 and is expected to have taxable income in each of the following 2 years. Its enacted tax rate is 34% for all years. This is the company's first year of operations. Instructions a. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019. b. Indicate how deferred income taxes will be reported on the statement of financial position at the end of 2019

Answer 1

Step-by-step explanation:

Step-by-step explanation:

a. The journal entry is shown below:

Income tax expense A/c Dr $112,200

Deferred tax Asset A/c Dr $6,800 ($20,000 × 34%)

To Income tax payable A/c $102,000 ($300,000 × 34%)

To Deferred tax liability $17,000 ($50,000 × 34%)

(Being the income tax expense, deferred income taxes, and income taxes payable for 2019 is recorded and the remaining balance is debited to the cash account)

b. Statement of financial position at the end of 2019

Long term liabilities

Net deferred tax liability ($17,000 - $6,800) $10,200

Current liabilities

Income tax payable $102,000

Answer 2

Step-by-step explanation:

a. The journal entry is shown below:

Income tax expense A/c Dr $112,200

Deferred tax Asset A/c Dr $6,800 ($20,000 × 34%)

To Income tax payable A/c $102,000 ($300,000 × 34%)

To Deferred tax liability $17,000 ($50,000 × 34%)

(Being the income tax expense, deferred income taxes, and income taxes payable for 2019 is recorded and the remaining balance is debited to the cash account)

b. Statement of financial position at the end of 2019

Long term liabilities

Net deferred tax liability ($17,000 - $6,800) $10,200

Current liabilities

Income tax payable $102,000