The DeVille Company reported pretax accounting income on its income statement as

Question

The DeVille Company reported pretax accounting income on its income statement as follows: 2013 $ 440,000 2014 360,000 2015 430,000 2016 470,000 Included in the income of 2013 was an installment sale of property in the amount of $66,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $26,400 in 2014, $33,000 in 2015, and $6,600 in 2016. Included in the 2015 income was $28,000 interest from investments in municipal bonds. The enacted tax rate for 2013 and 2014 was 30%, but during 2014 new tax legislation was passed reducing the tax rate to 25% for the years 2015 and beyond. Required: Prepare the year-end journal entries to record income taxes for the years 2013–2016.

Explanation / Answer

The journal entries are as follows:

Notes:

1) Income Tax Payable is calculated with the use of following table:

________

2) Cumulative Temporary Difference for each year is calculated with the use of following table:

________

3) The adjustment required to be made each year is calculated as follows:

Date Account Titles Debit Credit Dec 31, 2013 Income Tax Expense (19,800 + 112,200) $132,000 Deferred Tax Liability $19,800 Income Tax Payable $112,200 Dec 31, 2014 Income Tax Expense (115,920 – 9,900) $106,020 Deferred Tax Liability $9,900 Income Tax Payable $115,920 Dec 31, 2015 Income Tax Expense (108,750 – 8,250) $100,500 Deferred Tax Liability $8,250 Income Tax Payable $108,750 Dec 31, 2016 Income Tax Expense (119,150 – 1,650) $117,500 Deferred Tax Liability $1,650 Income Tax Payable $119,150

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