Question

Makoto Corp. prepared the following reconciliation of income per books with income per tax return for the year ended December 31, 2021: Book income before income taxes 2,700,000 Add temporary difference Installment revenue which will reverse in 2022 240,000 Deduct temporary difference Depreciation expense which will reverse in equal amounts in each of the next four years (960,000) Taxable income 1,980,000 Makoto's effective income tax rate is 25% for 2021. What amount should Makoto report in its 2021 income statement as the current provision for income tax expense?

Answer 1

Answer:

Income tax expense 567,000 debit

   income tax liability            151,200 credit

   income tax payable         415,800 credit

Explanation:

Income before taxes:                2,700,000

unfavorale temporary difference 240,000

favorable temporary difference   960,000

taxable income                           1,980,000

income tax payable : 1,980,000 x 21% =  415,800

income tax expense: 2,700,000 x 21% = 567,000

960,000 - 240,000 = 720,000 net

as we are paying fewer taxes now, we are going to pay more in the future.

Therefore, we have a tax liaiblity:

720,000 x 21 = 151,200