Question

Oliver Company earned taxable income of $7,500 during 2019, its first year of operations. A reconciliation of pretax financial income and taxable income indicated that an additional $2,500 of accelerated depreciation was deducted for tax purposes and that an estimated expense of $5,800 was deducted for financial reporting purposes. The estimated expense is not expected to be deductible for tax purposes until 2022, when the liability is paid. The current tax rate is 30%, and no change in the tax rate has been enacted for future years. The resulting journal entry for 2019 would be:

Answer 1

The resulting journal entry for 2019 would involve debiting Income Tax Expense and crediting Deferred Tax Liability and Income Taxes Payable.

Step-by-step explanation:

The resulting journal entry for 2019 would be:

Debit: Income Tax Expense - $3,000 ([$7,500 - $2,500] x 0.30)

Credit: Deferred Tax Liability - $1,740 ($5,800 x 0.30)

Credit: Income Taxes Payable - $1,260 ($7,500 x 0.30 - $1,740)

This journal entry takes into account the additional $2,500 of accelerated depreciation deducted for tax purposes and the estimated expense of $5,800 deducted for financial reporting purposes which is not expected to be deductible for tax purposes until 2022.