Question

Crane Corp. has pretax accounting income of $100,000. Crane has rent received in advance of $10,000. It is expected that Crane will report the revenue on the income statement in the following year when the performance obligation is satisfied. Crane has tax depreciation that is $25,000 more than depreciation expense for financial reporting purposes. The enacted tax rate is 30%. Which of the following entries will be included in the journal entry to record income tax at year-end? (Select all that apply.)

Answer 1

Crane must report a deferred tax asset = rent received in advance x tax rate = $10,000 x 30% = $3,000

• Dr Deferred tax asset 3,000

Crane must also report a deferred tax liability = tax depreciation in excess of depreciation expense x tax rate = $25,000 x 30% = $7,500

• Cr Deferred tax liability 7,500

Crane must report taxes payable = (pretax income x tax rate) + deferred tax asset - deferred tax liability = ($100,000 x 30%) + $3,000 - $7,500 = $30,000 + $3,000 - $7,500 = $25,500

• Cr Taxes payable 25,500