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    Income Tax Accounting

    Uploaded by

    hae1234
    The document provides accounting and tax information for Eldin Company in 2020 and 2021, and for Power Company in its first year of operations. For Eldin Company, it shows that in 2020 the company recorded a deferred tax liability for a deferred gain on an installment sale. In 2021, this deferred tax liability reversed reducing the company's tax expense. For Power Company, it provides accounting and taxable income amounts and asks to prepare journal entries to record current tax expense, deferred tax liability, and deferred tax asset based on temporary differences between accounting and taxable income.

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    Download as DOCX, PDF, TXT or read online from Scribd

    Income Tax Accounting

    Uploaded by

    hae1234
    387 views3 pages
    The document provides accounting and tax information for Eldin Company in 2020 and 2021, and for Power Company in its first year of operations. For Eldin Company, it shows that in 2020 the company recorded a deferred tax liability for a deferred gain on an installment sale. In 2021, this deferred tax liability reversed reducing the company's tax expense. For Power Company, it provides accounting and taxable income amounts and asks to prepare journal entries to record current tax expense, deferred tax liability, and deferred tax asset based on temporary differences between accounting and taxable income.

    Original Title

    INCOME-TAX-ACCOUNTING

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    The document provides accounting and tax information for Eldin Company in 2020 and 2021, and for Power Company in its first year of operations. For Eldin Company, it shows that in 2020 the company recorded a deferred tax liability for a deferred gain on an installment sale. In 2021, this deferred tax liability reversed reducing the company's tax expense. For Power Company, it provides accounting and taxable income amounts and asks to prepare journal entries to record current tax expense, deferred tax liability, and deferred tax asset based on temporary differences between accounting and taxable income.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    387 views3 pages

    Income Tax Accounting

    Uploaded by

    hae1234
    The document provides accounting and tax information for Eldin Company in 2020 and 2021, and for Power Company in its first year of operations. For Eldin Company, it shows that in 2020 the company recorded a deferred tax liability for a deferred gain on an installment sale. In 2021, this deferred tax liability reversed reducing the company's tax expense. For Power Company, it provides accounting and taxable income amounts and asks to prepare journal entries to record current tax expense, deferred tax liability, and deferred tax asset based on temporary differences between accounting and taxable income.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Submitted by: Limense, Princess Kathleen S.

    (ELDIN & POWER COMPANY)

    1. Eldin Company included a 2020 deferred income on installment sale of P500,000 in accounting
    income. This deferred income is expected to reverse for tax purposes in 2021. The income statement
    and tax returns showed the following:

    2020 2021

    Accounting Income 5,500,000 7,000,000

    Taxable Income 5,000,000 7,500,000

    REQUIRED: Prepare the journal entries to record the income tax and deferred tax for 2020 and 2021.

    ANSWER:

    2020

    1. Income tax expense 1,500,000


    Income tax payable (30% x 5,000,000) 1,500,000

    2. Income tax expense 150,000


    Deferred tax liability (30% x 500,000) 150,000

    Income statement presentation

    Income before income tax 5,500,000


    Income tax expense:
    Current tax expense 1,500,000
    Deferred tax expense 150,000 1,650,000
    Net Income 3,850,000

    2021

    1. Income tax expense 2,250,000


    Income tax payable (30% x 7,500,000) 2,250,000

    2. Deferred tax liability 150,000


    Income tax expense 150,000

    Income statement presentation

    Income before income tax 7,000,000


    Income tax expense:
    Current tax expense 2,250,000
    Decrease in deferred tax liability (150,000) 2,100,000
    Net Income 4,900,000
    2. Power Company provided the following information for the first year of operations:

    Accounting income, 4,000,000

    Nondeductible expenses, 200,000

    Nontaxable revenue, 300,000

    Deferred income on installement sale included in the financial income but taxable next year, 450,000

    Doubtful accounts recorded, 100,000

    Financial depreciation, 300,000

    Tax depreciation, 350,000

    Estimated warranty cost accrued in the current year but not deductible for tax purposes until paid,
    100,000

    Income tax rate, 30%

    REQUIRED: Prepare the journal entry to record the (a) current tax expense, (b) deferred tax liability, and
    (c) deferred tax asset.

    ANSWER:

    Accounting Income 4,000,000


    Permanent differences:
    Nondeductible expense 200,000
    Nontaxable revenue (300,000)
    Accounting income subject to tax 3,900,000
    Taxable temporary differences:
    Deferred income (450,000)
    Excess tax depreciation (50,000)
    Deductible temporary difference:
    Doubtful accounts (100,000)
    Estimated warranty cost (100,000)
    Taxable Income 3,600,000

    1. Income tax expense 1,080,000


    Income tax payable (30% x 3,600,000) 1,080,000

    2. Income tax expense 150,000


    Deferred tax liability (30% x 500,000) 150,000

    3. Deferred tax asset 60,000


    Income tax benefit (30% x 200,000) 60,000

    4. Income before income tax 4,000,000


    Income tax expense
    Current tax expense 1,080,000
    Deferred tax expense 150,000
    Income Tax benefit (60,000) 1,170,000
    Net Income 2,830,000
    5. Tax expense from increase in deferred tax liability 150,000
    Tax benefit from increase in deferred tax asset (60,000)
    Net deferred tax expense 90,000

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