Zekany Corporation would have had identical income before taxes on both its inco
ID: 2558803 • Letter: Z
Question
Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2018 through 2021 except for differences in depreciation on an operational asset. The asset cost $190,000 and is depreciated for income tax purposes in the following amounts:
The operational asset has a four-year life and no residual value. The straight-line method is used for financial reporting purposes.
Income amounts before depreciation expense and income taxes for each of the four years were as follows.
Assume the average and marginal income tax rate for 2018 and 2019 was 30%; however, during 2019 tax legislation was passed to raise the tax rate to 40% beginning in 2020. The 40% rate remained in effect through the years 2020 and 2021. Both the accounting and income tax periods end December 31.
Required:
Prepare the journal entries to record income taxes for the years 2018 through 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Explanation / Answer
Schedule of Computation of Tax Expense Particular 2018 2019 2020 2021 Accounting Income before Income and deprecaition $105,000 $125,000 $115,000 $115,000 Less: Depreciation as per books 190000/4 $47,500 $47,500 $47,500 $47,500 Accounting Income after deprecaition $57,500 $77,500 $67,500 $67,500 Income Tax Rate 30% 30% 40% 40% Income Tax Expense A $17,250 $23,250 $27,000 $27,000 Accounting Income before Income and deprecaition $105,000 $125,000 $115,000 $115,000 Less: Depreciation as per Income tax pupose $62,700 $83,600 $28,500 $15,200 Taxable Income after depreciation $42,300 $41,400 $86,500 $99,800 Income Tax Payable B $12,690 $12,420 $34,600 $39,920 DTL $4,560 $10,830 Reversal of DTL -$7,600 -$12,920 Journal Entry Date Account Title Debit Credit 31-Dec-18 Income Tax Expense $17,250.00 Income Tax Payable $12,690.00 Deferred Tax Liability $4,560.00 To Record Tax Expense and DTL Created 31-Dec-19 Income Tax Expense $23,250.00 Income Tax Payable $12,420.00 Deferred Tax Liability $10,830.00 To Record Tax Expense and DTL Created 31-Dec-20 Income Tax Expense $27,000.00 Deferred Tax Liability $7,600.00 Income Tax Payable $34,600.00 To Record Tax Expense and reversal of DTL 31-Dec-21 Income Tax Expense $27,000.00 Deferred tax Liability $12,920.00 Income Tax Payable $39,920.00 To Record Tax Expense and reversal of DTL
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