Question

Gore organized on January 2, 2021, had pretax accounting income of $7,100,000 and taxable income of $10,160,000 for the year ended December 31, 2021. The 2021 tax rate was 25%. The only difference between book and taxable income is estimated warranty costs. Expected payments and scheduled enacted tax rates are as follows:
2022 $1,020,000 30%
2023 510,000 30%
2024 510,000 30%
2025 1,020,000 35%

Required:
Prepare one compound journal entry to record Gore's provision for taxes for the year 2021.

Answer 1

Answer:

Date                  Account title                                              Debit           Credit

12/31/2021        Income tax expense                              $3,060,000

                         Deferred tax asset                                $ 969,000

                         Income tax payable                                                    $4,029,000

Explanation:

2021 Income tax expense from warranty costs:

= Taxable income - Pretax accounting income

= 10,160,000 - 7,100,000

= $3,060,000

Tax on the warranty payments will be treated as deferred tax assets so the total is:

= (1,020,000 * 30%) + (510,000 * 30%) + (510,000 * 30%) + (1,020,000 * 35%)

= $969,000