Question

The following information is available for Wenger Corporation:

1. Excess of tax depreciation over book depreciation, $43,800. This $43,800 difference will reverse equally over the years 2020–2023.
2. Deferral, for book purposes, of $18,100 of rent received in advance. The rent will be recognized in 2020.
3. Pretax financial income, $302,100.
4. Tax rate for all years, 20%.

Instructions:
(a) Compute taxable income for 2019.
(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019.
(c) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming taxable income is $325,000.

Answer 1

Answer:

The taxable income for 2019 is $276,000.

Explanation:

(a) Calculation of taxable income for 2019:

Pretax financial income                                                             $302,100

Less: Excess of tax depreciation over book depreciation      ($43,800)

Add: Rent received in advance                                                 $18,100

Taxable income for 2019                                                           $276,400

(b) Journal entries for 2019:                             Debit ($)         Credit ($)

Income tax expense ($302,100 x 20%)             60,420

Deferred tax asset ($18,100 x 20%)                    3,620

           Deferred tax liability ($43,800 x 20%)                             8,760  

           Income tax payable ($276,400 x 20%)                            56,800

Recording of income tax expense, deferred income taxes, and income taxes payable for 2019.

(c) Journal entries for 2020:

Income tax expense (65,000 + 3,620 - 2,190)    66,430

Deferred tax asset ($43,800 x 20% / 4)               2,190

           Deferred tax liability ($18,100 x 20%)                               3,620  

           Income tax payable ($325,000 x 20%)                            65,000

Recording of income tax expense, deferred income taxes, and income taxes payable for 2020.

Answer 2

Answer:

a) taxable income $276,400

b and c Journal entries prepared in the explanation

Explanation:

The first part is to compute the taxable income for 2019 as follows:

Description                                                             Amount

Pretax financial income for 2010                           302,100

Subtract: Tax dep. excess over book dep.           (43,800)

Add: Rent received in advance                                18,100

Taxable income                                                      276,400‬

B) Prepare the journal entry fro 2019 to record income tax expense, deferred income taxes and income taxes payable for 2019

Date                    Description                              Debit               Credit

2019           Income tax ex. (302,100 x 20%)     60,420

                   Deferred tax ( 18,100 x 20%)             3,620

                    Deferred tax liability (43,800 x20%)                       8,760

                    Income tax payable (276,400 x 20%)                     55,280‬

Being the record of income tax expense, deferred tax income taxes and income tax payable

c) Prepare the journal entry fro 2020 to record income tax expense, deferred income taxes and income taxes payable for 2019

Date                    Description                                     Debit                   Credit

2020      Income tax ex. (60,420+ 3,620-2,190)       61,850

              Deferred tax liab. ( 43,800/4 yearsx 20%)  2,190

                    Deferred tax Asset (18,100 x20%)                                       3,620

                    Income tax payable (325,000 x 20%)                               65,000

Being the record of income tax expense, deferred tax income taxes and income tax payable