Journey Entry Help

Journal entry

A)

Pretax financial income........................................................................................  $100,000

  Permanent differences:

                    Fine for pollution ................................................................................... 3,500

                    Tax-exempt interest .................................................................................(1,400)

 Originating temporary differences:

   Excess warranty expense per books

($5,000-$2,000)………………………………………………………..3,000

                    Excess construction profits per books

                       ($92,000 - $62,000)……………………………………………………(30,000)

                    Excess depreciation per tax return

                        ($80,000 - $60,000)...............................................................................   (20,000)

         

Taxable income......................................................................................................          $ 55100

(B)

Temporary differences	Future taxable (deductible ) amount	Tax rates	Differed tax
			Assets	Liability
Warranty cost	$ (3,000)	40%	$(1200)
Construction cost	30000	40%		$12,000
Depreciation	20000	40%		8,000
Totals	($47,000)		$(1200)	$20,000*

Because of the flat tax rate, reconciliation can be done on the total: $47,000 X 40% = $(1200) + $20,000.

C)

Income Tax Expense.......................................................................... 40,840

Deferred Tax Asset............................................................................  1200

Deferred Tax Liability.............................................................            20,000

Income Tax Payable................................................................           22040

 

Taxable income for 2015 [answer part (a)]............................................. $55,100

Tax rate....................................................................................................... 40%

 Income tax payable for 2011......................................................................$22040

Deferred tax liability at the end of 2015 [part (b)]....................................... $20,000

 Deferred tax liability at the beginning of 2015..............................................           0

 Deferred tax expense for 2015............................................. …………………$20,000

Deferred tax asset at the end of 2015 .......................................................... $ 1,200

 Deferred tax asset at the beginning of 2015.......................................................... 0

 Deferred tax benefit for 2015................................................................................$ (1200)

 Deferred tax expense for 2015 ............................................................................. $20,000

 Deferred tax benefit for 2015 ...............................................................................    (1200)

Net deferred tax expense for 2015............................................................................. $18,800

Current tax expense for 2015 (Income tax payable).................................................   $22040

 Deferred tax expense for 2015 .............................................................................    18800

 Income tax expense for 2015................................................................................       $40,840

D)

Income before income taxes....................................................................                         $100,000

Income tax expense

              Current ...........................................................................$22040

                    Deferred............................................................................18800             (40,840)

                    Net income  .................................................................................... $ 59,160

Date	Account title and explanation	Debit	Credit
	Income tax Expense(5000-2000)=3000*40% Deferred tax liabilities	$ 1200	$1200
	(Tax on warranty expense deferred)
	Deferred tax Asset (3000*40%) Income tax expense	$12000	12000
	(Tax on construction excess profit deferred)
	Deferred tax asset (20000*40%) Income tax expense	$8000	$8000
	Tax on excess depreciation expense deferred
	Income tax expense(3500*40%) Income tax payable	$1400	$1400

Particulars	Amounts
Pretax financial income	$100,000
Temporary difference Excess warranty expense per book($5000-$2000) Excess construction profit per book( $92000-$62000) Excess depreciation per tax return($80000-$60000) Permanent difference Fine for pollution -3500 Tax exempt interest-1400	$3000 ($30000) $20000
Taxable Income 5100	5100