Answer:
The Journal Entry with narrations is shown below:-
Explanation:
The Journal entry is shown below:-
1. Income tax expenses Dr, $42,575
To Income tax payable $40,175
To Deferred tax liability $2,400
(Being income tax expenses for the year is recorded)
Working note 1
Pretax financial income $166,600
Add: Permanent differences
Disallowed insurance expense $3,700
Less: Timing difference
Excess depreciation allowed $9,600
Income as per tax purpose $160,700
Working note 2
Income tax payable = Income tax rate × Income as per tax purposes
= 25% × $160,700
= $40,175
Working note 3
Deferred tax liability = Timing difference × Tax rate
= $9,600 × 25%
= $2,400
