Question

The information below pertains to Basselier, Inc.:

For the current year temporary differences existed between the financial statement carrying amounts and the tax basis of the following:
Carrying Amount Tax Basis Future Taxable
or (Deductible)
Amount Buildings and equipment $69,000,000 $53,100,000 $15,900,000
Prepaid insurance 1,900,000 0 1,900,000
Liability-loss contingency 10,900,000 0 (10,900,000)
No temporary differences existed at the beginning of the year. Pretax accounting income was $390,000,000 and taxable income was $129,000,000 for the year and the tax rate is 40%. Permanent differences are the cause of any difference between pretax accounting income and taxable income that are not due to temporary differences.
Instructions:
Prepare one journal entry to record the tax provision for the current year. Provide supporting computations.

Answer 1

Answer and Explanation:

The journal entry to record the tax provision is given below:

Income tax expenses $48,840,000

Deferred tax assets ($10,900,000 ×0.40) $4,360,000

To Deferred tax liability (($15,900,000 + $1,900,000)×0.40) $7,120,000

To Income tax payable ($129,000,000 ×0.40) $51,600,000

(To record income tax expenses)

Here the income tax expense and deferred tax asset should be debited as it increased the asset and expenses and credited the liability & tax payable as it increased the liability