Case Development began operations in December 2016. When property is sold on an
ID: 2541782 • Letter: C
Question
Case Development began operations in December 2016. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2016 installment income was $320,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2017–2019 are as follows:
Pretax accounting income for 2016 was $426,000, which includes interest revenue of $16,000 from municipal bonds. The enacted tax rate for 2016 is 20%.
Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Case’s 2016 income taxes. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands.)
What is Case’s 2016 net income? (Enter your answer in thousands.)
How should the deferred tax amount be classified in a classified balance sheet? (Enter your answers in thousands.)
2017 $ 60,000 20 % 2018 190,000 30 2019 70,000 30
Explanation / Answer
SOLUTION
(A) Journal Entry-
Explanation-
Deferred tax liability=
= ($60,000 * 20%) + ($190,000 * 30%) + ($70,000 * 30%)
= $12,000 + $57,000 + $21,000
= $90,000
(B)
(C) Current Assets- 2017 Installment Receivables - $60,000
Therefore, $60,000 * 20% = $12,000 (Deferred tax liability), Current Liabilities
Non- Current Assets- 2018, 2019 Installment Receivables - $190,000 & $70,000
Therefore, 30% * ($190,000 + $70,000) = $78,000 , (Deferred tax liability), Long term Liabilities
Accounts title and Explanations Debit ($) Credit ($) Tax expense 108,000 Deferred tax liability 90,000 Taxes payable ($90,000 * 20%) 18,000Related Questions
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