Question

BE19.11 (LO 2) At December 31, 2020, Fell Corporation had a deferred tax liability of $340,000, resulting from future taxable amounts of $2,000,000 and an enacted tax rate of 17%. In May 2021, a new income tax act is signed into law that raises the tax rate to 20% for 2021 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability.

Answer 1

Dr Income Tax Expense $60,000

Cr Deferred Tax Liability $60,000

Step-by-step explanation:

Total deferred tax liability to be recognized starting 2021:

$2,000,000 x 20% = $400,000

Additional income tax expense and deferred tax liability to be recorded due to the increase in tax rate (from 17% to 20% tax):

$400,000 - $340,000 = $60,000