Black Panther Comics Ltd, located in Wakanda had income before income tax of $11

ID: 2493468 • Letter: B

Question

Black Panther Comics Ltd, located in Wakanda had income before income tax of $110,000 and taxable income of $90,000 for 2016, the company’s first year of operations. The income tax rate in Wakanda is 25%. The company uses ASPE. Required: 1. Make the entry to record Black Panther Comics Ltd. income taxes for 2016. 2. Show what Black Panther will report on its 2016 income statement, starting with income before taxes. Also show what Black Panther will report for current and long-term liabilities on its December 31, 2016 balance sheet.

Explanation / Answer

Given data,

Income as per accounting Records = $110000

Taxable Income = $90000

Tax Rate = 25%

Requirement 1:

Income Tax Expense = Accounting Income * Tax Rate

= $110000 * 25%

= $27500

Income Tax Payable = Taxable Income * Tax Rate

= $90000 * 25%

= $22500

Deferred Tax Liability = Tax Expense - Income Tax Payable

= $27500 - $22500

= $5000

Entry to record Income Taxes for 2016:

Income Tax Expense a/c Dr $27500

To Income Tax Payable a/c $22500

To Deferred Tax Liability a/c $5000

Requirement 2:

Reporting in Income Statement:

Particulars

Amount ($)

Income Before Taxes

$110000

Less: Taxes

$22500

$5000

Income After Tax

$82500

Current Liability:

Income Tax Payable = $22500

Long Term Liability:

Deferred Tax Liability = $5000