Taxable income and pretax financial income would be identical for Martinez Co. e
ID: 2338814 • Letter: T
Question
Taxable income and pretax financial income would be identical for Martinez Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared.
Taxable income
2016
2017
2018
$155,000
$218,000
$88,600
8,000
8,000
8,000
(4,800
)
(4,800
)
(4,800
)
$158,200
$221,200
$91,800
Pretax financial income
2016
2017
2018
$155,000
$218,000
$88,600
24,000
0
0
(14,400
)
0
0
$164,600
$218,000
$88,600
The tax rates in effect are 2016, 40%; 2017 and 2018, 45%. All tax rates were enacted into law on January 1, 2016. No deferred income taxes existed at the beginning of 2016. Taxable income is expected in all future years.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016, 2017, and 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2016
Dec. 31, 2017
Dec. 31, 2018
Taxable income
2016
2017
2018
Excess of revenues over expenses (excluding two temporary differences)$155,000
$218,000
$88,600
Installment gross profit collected8,000
8,000
8,000
Expenditures for warranties(4,800
)
(4,800
)
(4,800
)
Taxable income$158,200
$221,200
$91,800
Pretax financial income
2016
2017
2018
Excess of revenues over expenses (excluding two temporary differences)$155,000
$218,000
$88,600
Installment gross profit recognized24,000
0
0
Estimated cost of warranties(14,400
)
0
0
Income before taxes$164,600
$218,000
$88,600
Explanation / Answer
Date Account Titles and Explanation Debit Credit Dec. 31, 2016 Income tax expense 65840 Deferred tax asset 4320 (4800*2)*0.45 Income tax Payable 62960 Deferred tax liability 7200 (16000*0.45) Dec. 31, 2017 Income tax expense 98100 Deferred tax asset 2160 Income tax Payable 99540 Deferred tax liability 3600 Dec. 31, 2018 Income tax expense 39870 Deferred tax asset 2160 Income tax Payable 41310 Deferred tax liability 3600
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