Bandung Corporation began 2014 with a $98,100 balance in the Deferred Tax Liabil
ID: 2445296 • Letter: B
Question
Bandung Corporation began 2014 with a $98,100 balance in the Deferred Tax Liability account. At the end of 2014, the related cumulative temporary difference amounts to $366,000, and it will reverse evenly over the next 2 years. Pretax accounting income for 2014 is $546,600, the tax rate for all years is 40%, and taxable income for 2014 is $425,850.
Compute income taxes payable for 2014.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Prepare the income tax expense section of the income statement for 2014. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Explanation / Answer
1. Taxable income = $425,850
Tax rate = 40%
Income tax payable = Taxable income * Tax rate = $425,850 * 40% = $170,340.
Deferred tax asset or liability is only for reporting purpose and is not actually or receivable. Hence, it is ignored for calculating income taxes payable.
2. Cumulative temporary difference = $366,000
This temporary difference will reverse in furture two years and will increase the taxable income in future years.
Thus, future taxable amount = $366,600
Deferred tax laibility at the end of 2014 = $366,600 * 40% = $146,400
Deferred tax laibility at the beginnning of 2014 = $98,100
Hence, deferred tax expense for the year 2014 = $146,400 - $98,100 = $48,300
Total income tax expense = Income tax payable + Deferred tax expense = $170,340 + $48,300 = $218,640
The journal entry will be as below:
3.
Income statement for the year 2014 would appear ass below:
Current tax
Deferred tax
Date Account name Debit Credit End of 2014 Income tax expense $218,640 Income tax payable $170,340 Deferred tax liabilty $48,300Related Questions
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