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: 2018 $ 355,000 2019 275,000 2020 345,000 2021 385,000 Included in the income of 2018 was an installment sale of property in the amount of $30,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $12,000 in 2019, $15,000 in 2020, and $3,000 in 2021. Included in the 2020 income was $10,000 interest from investments in municipal bonds. The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond. Required: Prepare the year-end journal entries to record income taxes for the years 2018–2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Working Note for Computation of Income Tax Expense, Deffered Tax Liability . Journal Entry 2018 2019 2020 2021 Date Account Desription , Title Debit Credit Pretax Accounting Income $355,000 $275,000 $345,000 $385,000 2018 Income Tax Expense $106,500 Less: installment of Sales -$30,000 Deffered Tax Expense $9,000 Add: Cash Collected on Installment $12,000 $15,000 $3,000 Income Tax Payable $97,500 Taxable Income $325,000 $287,000 $360,000 $388,000 To Record Income Tax Expense & DTL Created Tax Rate 30% 30% 25% 25% Income Tax Payable as per Taxable income $97,500 $86,100 $90,000 $97,000 2019 Income Tax Expense $81,600 Deferred Tax Liability Created at the End $9,000 $4,500 $750 $0 Deffered Tax Expense $4,500 =30000*30% =(30000-12000)*25% =(30000-12000-15000)25% =30000-12000-15000-3000)25% Income Tax Payable $86,100 To Record Income Tax Expense & DTL Reversal Deffered Tax Reversal - $4,500.00 $3,750.00 $750.00 (9000-4500) (4500-750) (750-0) 2020 Income Tax Expense $86,250 Deffered Tax Expense $3,750 Income Tax Expense $106,500.00 $81,600.00 $86,250.00 $96,250.00 Income Tax Payable $90,000 To Record Income Tax Expense & DTL Reversal 2021 Income Tax Expense $96,250 Deffered Tax Expense $750 Income Tax Payable $97,000 To Record Income Tax Expense & DTL Reversal

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