Question

Information for Kent Corp. for the year 2021: Reconciliation of pretax accounting income and taxable income: Pretax accounting income $ 180,000 Permanent differences (15,000 ) 165,000 Temporary difference-depreciation (12,000 ) Taxable income $ 153,000 Cumulative future taxable amounts all from depreciation temporary differences: As of December 31, 2020 $ 13,000 As of December 31, 2021 $ 25,000 The enacted tax rate was 25% for 2020 and thereafter. What would Kent's income tax expense be in the year 2021?

Answer 1

$41,250

Step-by-step explanation:

income tax payable 2021 = (pretax accounting income 2021 - permanent differences 2021 - temporary differences 2021) x tax rate 2021

income tax payable 2021 = ($180,000 - $15,000 - $12,000) x 25%

income tax payable 2021 = $153,000 x 25%

income tax payable 2021 = $38,250

income tax expense 2021 = income tax payable + (differences in cumulative future taxable amounts x tax rate) = $38,250 + [($25,000 - $13,000) x 25%] = $38,250 + ($12,000 x 25%) = $38,250 + $3,000 = $41,250

the journal entry should be:

December 31, 2021:

Dr Tax expenses 41,250

Cr Income tax payable 38,250

Cr Deferred tax liability 3,000