Shannon Polymers uses straight-line depreciation for financial reporting purpose

Question

Shannon Polymers uses straight-line depreciation for financial reporting purposes for equipment costing $840,000 and with an expected useful life of 4 years and no residual value. For tax purposes, the deduction is 40%, 30%, 20%, and 10% in those years. Pretax accounting income the first year the equipment was used was $960,000, which includes interest revenue of $28,000 from municipal bonds. Other than the two described, there are no differences between accounting income and taxable income. The enacted tax rate is 35%. Prepare the journal entry to record income taxes. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)

Explanation / Answer

Solution - Journal entry -

Below are the computation-

Calculation of Current tax liabiity

Account Debit Credit Income tax expense $ 326,200.00 Income tax payable $ 275,800.00 Deferred tax liability $    50,400.00

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