Year Pretax Financial Income Taxable Income Tax Rate Date Account Titles and Exp
ID: 2558634 • Letter: Y
Question
Year
Pretax
Financial Income
Taxable Income
Tax Rate
Date
Account Titles and Explanation
Debit
Credit
2017
2018
2019
2020
SHOW LIST OF ACCOUNTS
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The pretax financial income of Pearl Company differs from its taxable income throughout each of 4 years as follows.Year
Pretax
Financial Income
Taxable Income
Tax Rate
2017 $305,000 $173,000 35 % 2018 349,000 216,000 40 % 2019 358,000 277,000 40 % 2020 429,000 615,000 40 %Pretax financial income for each year includes a nondeductible expense of $29,100 (never deductible for tax purposes). The remainder of the difference between pretax financial income and taxable income in each period is due to one depreciation temporary difference. No deferred income taxes existed at the beginning of 2017.
Explanation / Answer
Date Account Titles and Explanation Debit Credit 2017 Income Tax Expense debit ((305000+29100)*35%) 116935 Deferred Tax Liability Credit (116935-60550) 56385 Income Tax Payable Credit (173000*35%) 60550 (To record income taxes for 2017.) 2018 Income Tax Expense debit ((305000+29100-173000)*5%) 8055 Deferred Tax Liability Credit 8055 (To record the adjustment for the increase in the enacted tax rate.) Income Tax Expense debit ((349000+29100)*40%) 151240 Deferred Tax Liability Credit (151240-86400) 64840 Income Tax Payable Credit (216000*40%) 86400 (To record income taxes for 2018.) 2019 Income Tax Expense debit ((358000+29100)*40%) 154840 Deferred Tax Liability Credit (154840-110800) 44040 Income Tax Payable Credit (277000*40%) 110800 (To record income taxes for 2019.) 2020 Income Tax Expense debit ((429000+29100)*40%) 183240 Deferred Tax Liability Credit (246000-183240) 62760 Income Tax Payable Credit (615000*40%) 246000 (To record income taxes for 2020.) $ $ Income before Income taxes 349000 Income Tax Expenses: Current 86400 Deferred (Includes adjustment due to tax rate increase = 64840+8055) 72895 159295 Net Income 189705
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