Interest on municipal securities included in net income in 2010 was $5,000. Depr
ID: 2595472 • Letter: I
Question
Interest on municipal securities included in net income in 2010 was $5,000.
Depreciation recognized in the tax return exceeded that in the financial statement income statement by $100,000. This temporary difference will reverse evenly during 2011 and 2012.
The company has accrued revenue of $10,000 in 2010 for financial reporting purposes, however the tax laws allow them to deferred showing this as a taxable revenue until 2011 when the cash will be collected.
Firm's pretax GAAP financial net income for 2010 was $300,000 and the company's income tax rate was 35%. This rate is scheduled to change to 40% for 2011 and 2012.
A. Prepare below a deferred income tax schedule for 2010. Showing all timing differences in the approriate year's column. Years 2010, 2011, and 2012.
2010 2011 2012
B. Prepare the general journal entry to accrue income taxes for 2010. Assume there was no prior balance in the company's deferred income tax account.
Explanation / Answer
Journal Entry
Year 2010
Deferred Tax Asset A/c Dr 40250
To Deferred Tax 40250
(Being Deferred Tax Asset has been recorded)
Year 2011
Deferred Tax Asset A/c Dr 40000
To Deferred Tax 40000
(Being Deferred Tax Asset has been recorded)
Deferred Tax A/c Dr 4000
To Diferred Tax Liability 4000
(Being Diferred Tax Liability Recorded)
Deferred Tax Liability A/c Dr 4000
To Diferred Tax Asset 4000
(Being Diferred Tax liability has been adjusted)
Year 2012
Diferred Tax Asset A/c Dr 40000
To Diferred Tax A/c 40000
(Being Diferred Tax liability has been adjusted)
Opening 40250 DTA 76250 DTA Deferred Tax Asset 2010 2011 2012 Interest on Municipal Taxes 5000 Accrued Interest 10000 Depreciation 100000 100000 100000 Total 115000 100000 100000 Deferred Tax Assets 40250 40000 40000 Deferred Tax Liability Accrued Interest of 2010 10000 Deferred Tax Liability 4000 Net Defrred Tax 40250 76250 116250 Carry forward 40250 DTA 76250 DTA 116250 DTARelated Questions
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