Question

A company reports pretax accounting income of $9 million, but because of a single temporary difference, taxable income is only $6 million. No temporary differences existed at the beginning of the year, and the tax rate is 30%.

Prepare the appropriate journal entry to record income taxes.

Answer 1

Debit Income tax expenses $2,700,000

Credit To deferred tax liability $900,000

Credit To Income tax payable $1,800,000

A journal entry to record income taxes is a financial notation made in an accounting journal to document and track the payment or accrual of taxes on income earned by a business or individual.

Deferred tax liability = (9,000,000-6,000,000) * 30%

Deferred tax liability = $900,000

Income tax payable = $6,000,000 * 30%

Income tax payable= $1,800,000

The journal entry to record income taxes is prepared as follows:

Debit Income tax expenses $2,700,000

Credit To deferred tax liability $900,000

Credit To Income tax payable $1,800,000