Question

Sandhill Company deducts insurance expense of $234000 for tax purposes in 2021, but the expense is not yet recognized for accounting purposes. In 2022, 2023, and 2024, no insurance expense will be deducted for tax purposes, but $78000 of insurance expense will be reported for accounting purposes in each of these years. Sandhill Company has a tax rate of 20% and income taxes payable of $196000 at the end of 2021. There were no deferred taxes at the beginning of 2021.What is the amount of income tax expense for 2021?

Answer 1

$242,800

Step-by-step explanation:

Tax Base Accounting Base Temporary Difference

2021 Insurance Expense $234,000 0 $234,000

This insurance expense will result in taxable temporary difference=$234,000*20%=$46,800

The journal entry will be;

Income Tax Expense Dr.$46,800

Deferred Tax liability Cr.$46,800

Therefore Income tax expense will be=$196,000+$46,800=$242,800