Ayayai Inc. has two temporary differences at the end of 2016. The first differen
ID: 2551223 • Letter: A
Question
Ayayai Inc. has two temporary differences at the end of 2016. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Ayayai’s accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows.
As of the beginning of 2016, the enacted tax rate is 34% for 2016 and 2017, and 38% for 2018–2021.
At the beginning of 2016, the company had no deferred income taxes on its balance sheet. Taxable income for 2016 is $452,000. 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.
Indicate how deferred income taxes would be classified on the balance sheet at the end of 2016.
2017 2018 2019 2020 Taxable Amounts 36,500 52,200 63,200 73,600 Deductible Amounts (15,500) (19,900) 36,500 36,700 43,300 73,600Explanation / Answer
Journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016.
Income Tax Expense A/c Dr $ 242538
Deferred Tax Asset A/c Dr $ 13452
To Tax Payable A/c Cr $171760
($ 452000*38%)
To Deferred Tax Liability A/c Cr $ 84230
Future taxable Tax Rate Deferred Tax (Deductible) (Asset) Liability
Temporary difference
Installment Sale $ 36500 34% $ 12410
Installment Sale $ 189000 38% $ 71820
(52200+63200+73600)
Loss Accrual $ (35400) 38% $ (13452)
(15500+19900)
Total $ 196,000 $ (13452) $ 84230
Ayayai Inc
Balance Sheet 31-Dec-16
Other Assets (non Current)
Deferred Tax asset $ 13452
Current Liabilities
Deferred Tax Liability $ 84230
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