Question

Pole Co. at the end of 2018, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $ 520,000 Extra depreciation taken for tax purposes (1,200,000) Estimated expenses deductible for taxes when paid 890,000 Taxable income $ 210,000 Use of the depreciable assets will result in taxable amounts of $400,000 in each of the next three years. The estimated litigation expenses of $890,000 will be deductible in 2021 when settlement is expected. Instructions (a) Determine the future taxable and deductible amounts for each of the next three years. (b) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2018, assuming a tax rate of 40% for all years

Answer 1

Answer:

Explanation:

A)

Future taxable       2019             2020         2021        total

And (deductible) amount

Extra depreciation         400000       400000   400000  1200000

Litigation                                                                   (890000)       (890000)

B)

Journal                                                 Debit                           Credit

Income tax expense

[840000 + (480000-356000)]          208000  

Deferred tax assets(890000×40%)   356000  

Deferred tax liability(1200000×40%)                                      480000

Income tax payable(210000×40%)                                              84000

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