Question

The following information is available for Carla Corporation for 2019 (its first year of operations).

1. Excess of tax depreciation over book depreciation, $43,800. This $43,800 difference will reverse equally over the years 2020–2023.
2. Deferral, for book purposes, of $18,100 of rent received in advance. The rent will be recognized in 2020.
3. Pretax financial income, $302,100.
4. Tax rate for all years, 20%.

Required:
a. Compute taxable income for 2019.
b. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019.
c. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming taxable income of $309,200.

Answer 1

The calculations and journal entries are shown below:

Step-by-step explanation:

The computations are shown below:

a. The taxable income is

Pretax financial income $302,100

Less: Excess of tax depreciation over book depreciation -$43,800

Add: Rent received in advance deferred for book purposes $18,100

Taxable income $276,400

b. The journal entry is shown below:

Income tax expense $60,420

Deferred tax asset (20% × $18,100) $3,620

To Income tax payable (20% × $276,400) $55,280

To Deferred tax liability (20% × $43,800) $8,760

(Being the income tax expense, deferred income taxes, and income taxes payable for 2019 is recorded)

c. The journal entry is shown below:

Income tax expense $63,270

Deferred tax liability ($8760 ÷ 4 years) $2,190

To Income tax payable (20% × $309,200) $61,840

To Deferred tax asset (20% × $18,100) $3,620

(Being the income tax expense, deferred income taxes, and income taxes payable for 20 is recorded)