The DeVille Company reported pretax accounting income on its income statement as

Question

The DeVille Company reported pretax accounting income on its income statement as follows:
   

   
Included in the income of 2018 was an installment sale of property in the amount of $44,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $17,600 in 2019, $22,000 in 2020, and $4,400 in 2021.

Included in the 2020 income was $18,000 interest from investments in municipal bonds.

The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond.

Required:
Prepare the year-end journal entries to record income taxes for the years 2018–2021.

Explanation / Answer

Working Note for Computation of Income Tax Expense, Deffered Tax Liability 2018 2019 2020 2021 Pretax Accounting Income $390,000 $310,000 $380,000 $420,000 Less: installment of Sales $44,000 Add: Cash Collected on Installment $17,600 $22,000 $4,400 Interest From Investment ( Permanent Reduction) 18000 Taxable Income $434,000 $327,600 $402,000 $406,400 Tax Rate 30% 30% 25% 25% Income Tax Payable as per Taxable income $130,200 $98,280 $100,500 $101,600 Deferred Tax Liability Created at the End $13,200 $6,600 $1,100 $0 =44000*30% =(44000-17600)*25% =44000-17600-22000)25% =44000-17600-22000-4400)25% Deffered Tax Reversal - $6,600.00 $5,500.00 $1,100.00 ($13200-$6600) ($6600-$1100) ($1100-0) Income Tax Expense $143,400.00 $91,680.00 $95,000.00 $100,500.00 . Journal Entry Date Account Desription , Title Debit Credit 2018 Income Tax Expense $143,400 Deffered Tax Expense $13,200 Income Tax Payable $130,200 To Record Income Tax Expense & DTL Created 2019 Income Tax Expense $91,680 Deffered Tax Expense $6,600 Income Tax Payable $98,280 To Record Income Tax Expense & DTL Reversal 2020 Income Tax Expense $95,000 Deffered Tax Expense $5,500 Income Tax Payable $100,500 To Record Income Tax Expense & DTL Reversal 2021 Income Tax Expense $100,500 Deffered Tax Expense $1,100 Income Tax Payable $101,600 To Record Income Tax Expense & DTL Reversal

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