27. North Dakota Corporation began operations in January 2012 and purchased a ma

Question

27. North Dakota Corporation began operations in January 2012 and purchased a machine for $20,000. North Dakota uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2012, 30% in 2013, and 20% in 2014. Pretax accounting income for 2012 was $150,000, which includes interest revenue of $20,000 from municipal bonds. The enacted tax rate is 30% for all years. There are no other differences between accounting and taxable income.

Required:

Prepare a journal entry to record income taxes for the year 2012. Show well-labeled computations for the amount of income tax payable and the change in the deferred tax account.

Explanation / Answer

Answer:

Income tax expense (to balance) A/C Dr. $ 39,000

          To Deferred tax liability (change in deferred tax balance per below) A/C    $ 1,500

          To Income tax payable A/C $ 37,500

Particulars 2012 Future taxable Amount Accounting income 150000 Permanent diff – municipal bond interest -20000 Depreciation diff (20Kx50%) - (20Kx25%) -5000 5000 Taxable income 125000 Enacted tax rate 30% 30% Tax payable currently 37500 Deferred tax liability (5K x 30%) 1500 Less: Beginning balance 0 Change in balance 1500

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.