Question

Taxable income and pretax financial income would be identical for Skysong Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared. Taxable income 2019 2020 2021 Excess of revenues over expenses (excluding two temporary differences) $148,000 $227,000 $96,400 Installment gross profit collected 8,400 8,400 8,400 Expenditures for warranties (5,500 ) (5,500 ) (5,500 ) Taxable income $150,900 $229,900 $99,300 Pretax financial income 2019 2020 2021 Excess of revenues over expenses (excluding two temporary differences) $148,000 $227,000 $96,400 Installment gross profit recognized 25,200 -0- -0- Estimated cost of warranties (16,500 ) -0- -0- Income before taxes $156,700 $227,000 $96,400 The tax rates in effect are 2019, 40%; 2020 and 2021, 45%. All tax rates were enacted into law on January 1, 2019. No deferred income taxes existed at the beginning of 2019. Taxable income is expected in all future years. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019, 2020, and 2021.

Answer 1

Answer:

Explanation:

This question was computed in an Excel SOlver and the result are shown below:

Date                Particulars                           Debit($)          Credit($)

31-Dec-19       Income tax expense         62970

                      Deferred tax asset               4950

                     Income taxes payable                                  60360

                      Deferred tax  liability                                     7560

             (To record income tax expense

              for the year)

31-Dec-20       Income tax expense         102150

                     Deferred tax asset                 3780

                     Income taxes payable                                  103455

                      Deferred tax  asset                                          2475

             (To record income tax expense

              for the year)

31-Dec-21    Income  tax expense           43380

                   Deferred tax liability                3780

                  Income taxes payable                                     44685

                  Deferred tax Asset                                            2475

               (TO record income tax  expense

                 for the year)