The following facts relate to SOWL Corporation. 1. Deferred tax liability, Janua
ID: 2473683 • Letter: T
Question
The following facts relate to SOWL Corporation.
1. Deferred tax liability, January 1, 2015, $40,000.
2. Deferred tax asset, January 1, 2015, $0.
3. Taxable income for 2015, $95,000.
4. Pretax financial income for 2015, $200,000.
5. Cumulative temporary difference at December 31, 2015,
giving rise to future taxable amounts, $240,000.
6. Cumulative temporary difference at December 31, 2015,
giving rise to future deductible amounts, $35,000.
7. Tax rate for all years, 40%.
8. The company is expected to operate profitably in the future.
(a) Compute income taxes payable for 2015.
(b) Prepare the journal entry to record income tax expense, deferred
income taxes, and income taxes payable for 2015.
(c) Prepare the income tax expense section of the income statement for
2015, beginning with the line "Income before income taxes.
Explanation / Answer
a) Taxable income for 2015=$95,000
Income tax payable=40%*95,000=$38,000
b)Defered tax asset= 35000*0.4=$14,000
Defered tax liability=240,000*0.4= $96,000-40,000=$56,000 (since at end of year it is $240,000*0.4 and starting of year it is $40,000)
Income tax expense(db) 80,000
Defered tax asset(db) 14,000
Income tax payable (cr) 38,000
Defered tax liability (cr) 56,000
c) Pretax financial Income $200,000
Current tax (38,000)
Defered tax= defered tax liablity-defered tax asset=56,000-14,000=(42,000)
total tax : $80,000
Net Income:200,000-80,000=$120,000
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