Question

North Dakota Corporation began operations in January 2020 and purchased a machine for $20,000. North Dakota uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2020, 30% in 2021, and 20% in 2022. Pretax accounting income for 2020 was $150,000, which includes interest revenue of $20,000 from municipal bonds. The enacted tax rate is 25% for all years. There are no other differences between accounting and taxable income. Required: Prepare a journal entry to record income taxes for the year 2020.

Answer 1

Required: Prepare a journal entry to record income taxes for the year 2020

Step-by-step explanation:

Income tax expense (to balance) 39,000

Deferred tax liability 1500

Income tax payable 37,500

2012 future taxable amount

Accounting income 150,000

Permanent diff- municipal bond interest (20,000)

Depreciation (5,000) 5,000

Taxable Income 125,000

Enacted tax rate 30% 30%

Tax payable currently 37,500

Deferred tax liabilities (5K x 30%) 1,500