Answer:
1. Dr Income tax expense $43,000
Cr Deferred tax liability $2,500
Cr Income tax payable $40,500
2. $157,000
Step-by-step explanation:
1. Preparation of the Journal entry to record income taxes in 2021
First step is to record income taxes in 2021
TAX RATE % TAX $ RECORDED AS
Pre-tax accounting income $200,000
Less Permanent difference ($28,000)
Income subject to Taxation
$172,000 ×25% $43,000 Income tax expense
Less Temporary difference
($10,000) ×25% - $2,500 Deferred tax liability
Income taxable in current year
$162,000 ×25% $40,500 Income tax payable
Calculation for Temporary difference
Depreciation in 2021 as per taxation=$40,000×50%
Depreciation in 2021 as per taxation=$20,000
Depreciation as per straight line=$40,000/4
Depreciation as per straight line=$10,000
Using this formula to calculate the Temporary difference
Temporary difference=Depreciation as per straight line-Depreciation in 2021 as per taxation
Let plug in the formula
Temporary difference=$20,000-$10,000
Temporary difference=$10,000
Preparation of Southern Atlantic Distributors JOURNAL ENTRY
Dr Income tax expense $43,000
Cr Deferred tax liability $2,500
Cr Income tax payable $40,500
(Being to record income tax expense)
2. Calculation for Southern Atlantic Distributors Net income
Income before income taxes $200,000
Less Income tax expense
Deferred tax liability ($2,500)
Income tax payable ($40,500)
Net income $157,000
($200,000-$2,500-$40,500)
Therefore 2021 Net income is $157,000