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Intermediate Accounting (Kieso)
Found in: Page 1099

Short Answer

Nadal Inc. has two temporary differences at the end of 2016. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadal’s accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows. 2017 2018 2019 2020 Taxable amounts $40,000 $50,000 $60,000 $80,000 Deductible amounts (15,000) (19,000) $40,000 $35,000 $41,000 $80,000 As of the beginning of 2016, the enacted tax rate is 34% for 2016 and 2017, and 38% for 2018–2021. At the beginning of 2016, the company had no deferred income taxes on its balance sheet. Taxable income for 2016 is $500,000. Taxable income is expected in all future years. Instructions (a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (b) Indicate how deferred income taxes would be classified on the balance sheet at the end of 2016.

The deferred amounts of the income tax are calculated by using the future taxable amounts and their respective tax rate. This calculation gives the organization the amount for its deferred asset/liability.

See the step by step solution

Step by Step Solution

Working notes for the calculation of deferred tax asset/liability for the year 2016

Temporary difference

Taxable amounts

Tax rate

Deferred tax asset

Deferred tax liability

Installment sale




Installment sale




Loss accruals








(a) Recording of the journal entry for the year 2016






Income tax expense


Deferred tax asset


Income tax payable


Deferred tax liability


(To record the income tax expense)

(b) Indication of the amounts in the balance sheet

Balance sheet



Current liabilities

Deferred tax liability




Other assets

Non-current assets

Deferred tax asset


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