Question

A company reports 2021 pretax accounting income of $38 million, but because of a single temporary difference, taxable income is only $21 million. No temporary differences existed at the beginning of the year, and the tax rate is 25%.

Required:
Prepare the appropriate journal entry to record income taxes.

Answer 1

Date Account Title Debit Credit

XX-XX-2021 Income tax expense $9,500,000

Deferred tax liability $4,250,000

Income tax payable $5,250,000

Step-by-step explanation:

Income tax expense = Pretax income * tax rate

= 38,000,000 * 25%

= $9,500,000

Deferred tax liability = (Pretax income - Taxable income) * tax rate

= (38 million - 21 million) * 25%

= $4,250,000

Income tax payable = Taxable income * tax rate

= 21,000,000 * 25%

= $5,250,000