Question

Bridgeport Inc. had pretax financial income of $139,400 in 2020. Included in the computation of that amount is insurance expense of $4,400 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $10,000.Prepare Bridgeport’s journal entry to record 2020 taxes, assuming a tax rate of 25%.

Answer 1

Dr income expense($33450 +$2500) $35950

Cr income tax payable $33450

Cr deferred income tax $2500

Step-by-step explanation:

The adjusted taxable income adjusted for disallowed insurance expense of $4,400 as well as the excess depreciation(timing difference) of $10,000

Pretax financial income $139,400

add:

disallowed expense $4,400

less:

additional depreciation ($10,000)

Adjusted taxable income $133,800

income tax expense is $133800 *25%=$33450

deferred tax liability =$10,000*25%=$2500

total tax expense for the year is 35950 ($33450+$2500)