Taxable income and pretax financial income would be identical for Sunland Co. ex

Question

Taxable income and pretax financial income would be identical for Sunland Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared Taxable income 2016 2017 2018 Excess of revenues over expenses (excluding two temporary differences) Installment gross profit collected $151,000 $207,000 $96,200 7,300 7,300 7,300 Expenditures for warranties (5,200 (5,200) (5,200) Taxable income $153,100 $209,100 $98,300 Pretax financial income 2016 2017 2018 Excess of revenues over expenses (excluding two temporary differences) Installment gross profit recognized Estimated cost of warranties $151,000 $207,000 $96,200 0 0 $157,300 $207,000 $96,200 21,900 0 (15,600) 0 Income before taxes The tax rates in effect are 2016, 4096; 2017 and 2018, 45%. All tax rates were enacted into law on January 1, 2016. No deferred income taxes existed at the beginning of 2016. Taxable income is expected in all future years

Explanation / Answer

. Journal Entry Date Account Desription , Title Debit Credit 2016 Income Tax Expense $63,130.00 Deferred Tax Liability $1,890.00 Income Tax Payable $61,240.00 To Record Income Tax Expense & DTL Created 2017 Income Tax Expense $93,150.00 Deferred Tax Liability $945.00 Income Tax Payable $94,095.00 To Record Income Tax Expense & DTL Reversal 2018 Income Tax Expense $43,290.00 Deffered Tax Expense $945.00 Income Tax Payable $44,235.00 To Record Income Tax Expense & DTL Reversal Working Note for Computation of Income Tax Expense, Deffered Tax Liability 2016 2017 2018 Pretax Accounting Income (a) $157,300 $207,000 $96,200 Taxable Income (b) $153,100 $209,100 $98,300 Tax Rate 40% 45% 45% Income Tax Payable as per Taxable income $61,240 $94,095 $44,235 Temporary Difference (a-b) $4,200 -$2,100 -$2,100 Deferred Tax Liability Created at the End $1,890 $945 $0 =4200*45% =(4200-2100)*45% =54000-21600-27000)25% Deffered Tax Reversal - $945.00 $945.00 Income Tax Expense $63,130.00 $93,150.00 $43,290.00

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