Question 1 Taxable income and pretax financial income would be identical for She

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Question 1 Taxable income and pretax financial income would be identical for Sheridan 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 Expenditures for warranties $162,000 $228,000 $86,600 8,300 8,300 8,300 (5,500 ) (5,500) (S,s00) Taxable income $164,800 $230,800 $89,400 Pretax financial income 2016 2017 2018 Excess of revenues over expenses (excluding two temporary differences) Installment gross profit recognized Estimated cost of warranties $162,000 $228,000 $86,600 24,900 (16,500) Income before taxes $170,400 $228,000 $86,600 The tax rates in effect are 2016, 40%; 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. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016, 2017, and 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Explanation / Answer

Taxable income as per financial income tax payable as per books 2016 $164,800 40% $65,920 2017 $230,800 45% $103,860 2018 $89,400 45% $40,230 Pre tax financial income 2016 $170,400 40% $68,160 2017 $228,000 45% $102,600 2018 $86,600 45% $38,970 Date Account titles and explanation Debit($) Credit($) 31-Dec-16 Income tax expense…Dr $68,160 To Deferred Tax liability $2,240 To Income tax payable $65,920 (income tax expense incurred) 31-Dec-17 Income tax expense…Dr $102,600 Deferred Tax Asset $1,260 To Income tax payable $103,860 (income tax expense incurred) 31-Dec-18 Income tax expense…Dr $38,970 Deferred Tax Asset $1,260 To Income tax payable $40,230 (income tax expense incurred)

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