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Deferred Tax Journal Entries Guide

The document provides accounting and tax information for Eldin Company in 2020 and 2021, and for Power Company in its first year of operations. For Eldin Company, it shows that in 2020 the company recorded a deferred tax liability for a deferred gain on an installment sale. In 2021, this deferred tax liability reversed reducing the company's tax expense. For Power Company, it provides accounting and taxable income amounts and asks to prepare journal entries to record current tax expense, deferred tax liability, and deferred tax asset based on temporary differences between accounting and taxable income.

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563 views3 pages

Deferred Tax Journal Entries Guide

The document provides accounting and tax information for Eldin Company in 2020 and 2021, and for Power Company in its first year of operations. For Eldin Company, it shows that in 2020 the company recorded a deferred tax liability for a deferred gain on an installment sale. In 2021, this deferred tax liability reversed reducing the company's tax expense. For Power Company, it provides accounting and taxable income amounts and asks to prepare journal entries to record current tax expense, deferred tax liability, and deferred tax asset based on temporary differences between accounting and taxable income.

Uploaded by

hae1234
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Submitted by: Limense, Princess Kathleen S.

(ELDIN & POWER COMPANY)

1. Eldin Company included a 2020 deferred income on installment sale of P500,000 in accounting
income. This deferred income is expected to reverse for tax purposes in 2021. The income statement
and tax returns showed the following:

2020 2021

Accounting Income 5,500,000 7,000,000

Taxable Income 5,000,000 7,500,000

REQUIRED: Prepare the journal entries to record the income tax and deferred tax for 2020 and 2021.

ANSWER:

2020

1. Income tax expense 1,500,000


Income tax payable (30% x 5,000,000) 1,500,000

2. Income tax expense 150,000


Deferred tax liability (30% x 500,000) 150,000

Income statement presentation

Income before income tax 5,500,000


Income tax expense:
Current tax expense 1,500,000
Deferred tax expense 150,000 1,650,000
Net Income 3,850,000

2021

1. Income tax expense 2,250,000


Income tax payable (30% x 7,500,000) 2,250,000

2. Deferred tax liability 150,000


Income tax expense 150,000

Income statement presentation

Income before income tax 7,000,000


Income tax expense:
Current tax expense 2,250,000
Decrease in deferred tax liability (150,000) 2,100,000
Net Income 4,900,000
2. Power Company provided the following information for the first year of operations:

Accounting income, 4,000,000

Nondeductible expenses, 200,000

Nontaxable revenue, 300,000

Deferred income on installement sale included in the financial income but taxable next year, 450,000

Doubtful accounts recorded, 100,000

Financial depreciation, 300,000

Tax depreciation, 350,000

Estimated warranty cost accrued in the current year but not deductible for tax purposes until paid,
100,000

Income tax rate, 30%

REQUIRED: Prepare the journal entry to record the (a) current tax expense, (b) deferred tax liability, and
(c) deferred tax asset.

ANSWER:

Accounting Income 4,000,000


Permanent differences:
Nondeductible expense 200,000
Nontaxable revenue (300,000)
Accounting income subject to tax 3,900,000
Taxable temporary differences:
Deferred income (450,000)
Excess tax depreciation (50,000)
Deductible temporary difference:
Doubtful accounts (100,000)
Estimated warranty cost (100,000)
Taxable Income 3,600,000

1. Income tax expense 1,080,000


Income tax payable (30% x 3,600,000) 1,080,000

2. Income tax expense 150,000


Deferred tax liability (30% x 500,000) 150,000

3. Deferred tax asset 60,000


Income tax benefit (30% x 200,000) 60,000

4. Income before income tax 4,000,000


Income tax expense
Current tax expense 1,080,000
Deferred tax expense 150,000
Income Tax benefit (60,000) 1,170,000
Net Income 2,830,000
5. Tax expense from increase in deferred tax liability 150,000
Tax benefit from increase in deferred tax asset (60,000)
Net deferred tax expense 90,000

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