Question

In 2016, its first year of operations, Wilber Company reported pretax accounting income of $60,000. Included in the $60,000 was an expense for accrued, unpaid warranty costs of $8,000, which are not deductible until paid for income tax purposes. Wilber's income tax rate was 20%. The entry to record the income tax expense would include a:

A. credit to Income Taxes Payable for $12,000.
B. credit to Income Tax Expense for $12,000.
C. debit to Deferred Tax Asset for $1,600.
D. credit to Deferred Tax Liability for $1,600.

Answer 1

credit to Deferred Tax Liability for $1,600.

Step-by-step explanation:

Deferred tax liability is a tax expense that accrued within one accounting period but is payable at a future period.

The journal entries on creation of the deferred tax liability includes a debit to Income tax expense and a credit to deferred tax liability.

On settling of the deferred tax we debit deferred tax liability and credit Income tax expense.

In this instance the income tax rate is 20%. Warranty cost of $8,000 is deferred.

Deferred tax= 0.2 * 8,000= $1,600

So the journal entry will be a debit to Income tax expense of $1,600 and a credit to Deferred tax liability of $1,600