Question

The following facts relate to Krung Thep Corporation. 1. Deferred tax liability, January 1, 2014, $40,000. 2. Deferred tax asset, January 1, 2014, $0. 3. Taxable Income for 2014, $95,000. 4. Pretax financial income for 2014, $200,000. 5. Cumulative temporary difference at December 31, 2014, giving rise to future taxable amounts, $240,000. 6. Cumulative temporary difference at December 31, 2014, giving rise to future deductible amounts, $35,000. 7. Tax rate for all years, 40%. 8. The company is expected to operate profitable in the future. Instructions. a. Compute income taxes payable for 2014. b. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014. c. prepare the income tax expense section of the income statement for 2014, beginning with the line "Income before income taxes."

Answer 1

Answer:

A.Taxable income $95,000

Enacted tax rate (40%*$95,000)

Income tax payable $38,00

B.Dr Income Tax Expense 80,000

Dr Deferred Tax Asset 14,000

Cr Income Tax Payable 38,000

Cr Deferred Tax Liability 56,000

C.Net income $120,000

Explanation:

Compututation of income taxes payable for 2014.

Taxable income $95,000

Enacted tax rate (40%*$95,000)

Income tax payable $38,000

(b) Journal entry

Dr Income Tax Expense 80,000

Dr Deferred Tax Asset 14,000

Cr Income Tax Payable 38,000

Cr Deferred Tax Liability 56,000

c)

Income before income taxes $200,000

Less Income tax expense

(Current $38,000+Deferred 42,000) 80,000

Net income $120,000