Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q15E.

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 1098

Short Answer

Taxable income and pretax financial income would be identical for Huber Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared. Taxable Income 2016 2017 2018 Excess of revenues over expenses (excluding two temporary differences) $160,000 $210,000 $90,000 Installment gross profi t collected 8,000 8,000 8,000 Expenditures for warranties (5,000) (5,000) (5,000) Taxable income $163,000 $213,000 $93,000 Pretax Financial Income Excess of revenues over expenses (excluding two temporary differences) $160,000 $210,000 $90,000 Installment gross profi t recognized 24,000 –0– –0– Estimated cost of warranties (15,000) –0– –0– Income before taxes $169,000 $210,000 $90,000. The tax rates in effect are 2016, 40%; 2017 and 2018, 45%. All tax rates were enacted into law on January 1, 2016. No deferred income taxes existed at the beginning of 2016. Taxable income is expected in all future years. Instructions Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016, 2017, and 2018.

Revenue and expense are two terms represented under the business venture's income statement. Both are recorded to ascertain the net income or loss of the firm.

See the step by step solution

Step by Step Solution

Working notes

For 2016

Temporary difference

Taxable amount

Tax rate

Deferred tax asset

Deferred tax liability

Installment sales

$16,000

45%

$7,200

Warranty costs

($10,000)

45%

($4,500)

Total

$6,000

($4,500)

$7,200

For 2017

Temporary difference

Taxable amount

Tax rate

Deferred tax asset

Deferred tax liability

Installment sales

$8,000

45%

$3,600

Warranty costs

($5,000)

45%

($2,250)

Total

$3,000

($2,250)

$3,600

For 2018

Temporary difference

Taxable amount

Tax rate

Deferred tax asset

Deferred tax liability

Installment sales

$8,000

45%

$3,600

Warranty costs

($5,000)

45%

($2,250)

Total

$3,000

($2,250)

$3,600

Preparation of the journal entries

Date

Particulars

Debit

Credit

2016

Income tax expense

$67,900

Deferred tax asset

$4,500

Income tax payable

$65,200

Deferred tax liability

$7,200

(To record the tax expense)

2017

Income tax expense

$94,500

Deferred tax liability

$3,600

Income tax payable

$95,850

Deferred tax asset

$2,250

(To record the income tax expense for the year 2017)

2018

Income tax expense

$40,500

Deferred tax liability

$3,600

Income tax payable

$41,850

Deferred tax liability

$2,250

(To record the income tax expense for the year 2018)

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.