South Carolina Corporation has one temporary difference at the end of 2014 that
ID: 2470159 • Letter: S
Question
South Carolina Corporation has one temporary difference at the end of 2014 that will reverse and cause taxable amounts of $62,720 in 2015, $68,030 in 2016, and $74,916 in 2017. South Carolina’s pretax financial income for 2014 is $359,580, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2014.
(a) Compute taxable income and income taxes payable for 2014.
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014.
Prepare the income tax expense section of the income statement for 2014, beginning with the line “Income before income taxes.”
Explanation / Answer
SOUTH CAROLINA CORPORATION
Computation of Taxable Income and Tax Payable for the year 2014
PARTICULARS AMOUNT IN $
Pretax Financial Income 3,59,580
Less : Temporary Difference reverse 2,05,666
in future
( 62,720 + 68,030 + 74,916 )
Taxable Income 1,53,914
Tax @ 30% 46,174
JOURNAL ENTRIES
PARTICULARS DEBIT CREDIT
1. Profit & Loss A/c...............................................Dr. 45,174
To Deferred Tax Liability 46,174
( Being provision made for the tax payable for
the current year )
2. Profit & Loss A/c...............................................Dr. 61,700
To Deferred Tax Liability 61,700
( Being tax liability defferred for future -
2,05,666 * 30% )
INCOME STATEMENT
PARTICULARS AMOUNT IN $ PARTICULARS AMOUNT IN $
To Provision for Tax 46,174 By Profit & Loss A/c 3,59,580
To Deferred Tax Liability 61,700
To Reserve & Surplus 2,51,706
TOTAL 3,59,580 TOTAL 3,59,580
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