Question

The following information is available for Vaughn Corporation for 2020. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $124,000. This difference will reverse in equal amounts of $31,000 over the years 2021-2024. 2. Interest received on municipal bonds was $10,100. 3. Rent collected in advance on January 1, 2020, totaled $56,700 for a 3-year period. Of this amount, $37,800 was reported as unearned at December 31, 2020, for book purposes. 4. The tax rates are 40% for 2020 and 35% for 2021 and subsequent years. 5. Income taxes of $308,000 are due per the tax return for 2020. 6. No deferred taxes existed at the beginning of 2020.

Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2020 and 2021. Assume taxable income was $1,021,000 in 2021.

Answer 1

Delete
2020 Entries:

To record income tax expense and income taxes payable:

Income Tax Expense $482,400
Income Taxes Payable $482,400
(To record income tax expense for 2020 based on taxable income of $1,210,000)

To record deferred income tax liability:

Deferred Tax Liability $49,600
Income Tax Expense $49,600
(To record deferred tax liability for the temporary difference of $124,000 in depreciation)

2021 Entries:

To record income tax expense and income taxes payable:

Income Tax Expense $357,350
Income Taxes Payable $357,350
(To record income tax expense for 2021 based on taxable income of $1,021,000)

To adjust deferred income tax liability:

Deferred Tax Liability $19,600
Income Tax Expense $19,600
(To adjust the deferred tax liability for the $31,000 reversal of temporary difference in depreciation)

To record deferred income tax asset:

Deferred Tax Asset $22,946
Income Tax Expense $22,946
(To record deferred tax asset for the $37,800 of unearned rent reported for book purposes)